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10/07/26
22
Australian Dollar Extends Gains as Dollar Softens
The Australian dollar extended its advance against the US dollar for a second straight session on Friday, reaching a two-and-a-half-week high near 0.6970 during Asian trading before easing slightly. The pair was last seen in the mid-0.6900s, still modestly higher on the day. The move reflected a softer greenback and growing confidence that the Federal Reserve may not be in a hurry to tighten policy further.
The US dollar came under pressure after the latest FOMC minutes were perceived as less hawkish than expected. At the same time, market hopes that diplomacy could help reduce Middle East tensions supported demand for risk-sensitive currencies such as the Australian dollar. Signs that negotiations involving Iran and the US remain alive have helped curb safe-haven flows into the dollar.
Even so, losses in the US currency have remained limited. Ongoing conflict between the US and Iran continues to support a geopolitical risk premium, while expectations that the Fed could still raise rates at least once in 2026 are preventing a deeper decline in the dollar. That combination has kept the AUD/USD pair from breaking meaningfully higher, despite its recent recovery.
The Australian dollar also continues to draw support from a more hawkish tone at the Reserve Bank of Australia. RBA Assistant Governor Sarah Hunter recently indicated that if elevated global energy prices persist because of the Iran conflict, additional policy tightening may be needed to bring inflation back to target. That message has helped offset the drag from global uncertainty.
With no major Australian data releases due in the immediate term, traders are likely to focus on developments in the Middle East, US interest-rate expectations, and broader risk sentiment. For now, the backdrop still favors the Aussie’s rebound from the three-month low reached in June, although the pair may struggle to sustain a sharp rise without a further decline in the US dollar.
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