Last Updated on 18/08/2026
AUD Advances as Fading Fed Hike Bets Weigh on US Dollar
- AUD/USD advances for a third straight session as weaker Fed rate-hike expectations continue to weigh on the US Dollar.
- Rising US-Iran tensions, following Trump’s stance on the expiring agreement and the naval blockade, add to broader geopolitical uncertainty.
- Traders turn their attention to Australia’s August consumer confidence and Q2 Wage Price Index data for fresh clues on the RBA’s policy path.
AUD/USD extends its upward momentum for a third consecutive day, trading near 0.7110 during Tuesday’s Asian session. The pair remains supported as the US Dollar struggles amid diminishing expectations for additional Federal Reserve rate hikes.
The unexpected drop in US Nonfarm Payrolls in July, together with relatively soft consumer inflation data released last week, has reduced expectations for a rate increase at the Fed’s next meeting. CME FedWatch Tool data now shows a 35% probability of a hike, down from 47% one month ago.
Geopolitical developments between the US and Iran are also influencing market sentiment. On Monday, US President Donald Trump said he was not interested in extending the expiring agreement with Iran, pointing to the naval blockade of Iranian ports as a sign of US leverage. Trump also reiterated his proposal to place the strategically important waterway under full US control.
Iranian Foreign Ministry spokesman Esmail Baghaei, meanwhile, said a deal remains out of reach because of security concerns and what he described as the “obstructionist behavior of destructive elements.” He called on Washington to remove the blockade before further negotiations could take place.
In Australia, attention is shifting toward upcoming economic indicators that could offer fresh insight into the domestic policy outlook. The August Westpac Consumer Confidence Index is due first, followed by the Q2 Wage Price Index. Australian wages are expected to increase 0.8% quarter-on-quarter, matching the pace recorded in the previous quarter.
Australia wage data unlikely to alter RBA expectations
Brown Brothers Harriman strategists expect the upcoming Australian labor-market figures to have a limited impact on expectations for Reserve Bank of Australia policy. BBH expects Q2 wage growth to remain at 0.8% q/q for a third consecutive quarter, while annual growth is forecast to ease to 3.2% from 3.3% in Q1.
This combination is unlikely to significantly change the current market view that the RBA will keep interest rates unchanged. As a result, the upcoming data present only limited potential for a meaningful repricing of RBA rate expectations.
RBA futures point to limited tightening
RBA cash-rate futures currently imply around a 60% probability of one final 25-basis-point rate increase by year-end, which would take the cash rate to 4.60%. However, BBH believes the risks are tilted toward the RBA maintaining its restrictive stance for longer rather than delivering another near-term hike.
With monetary policy already considered somewhat restrictive, markets may be pricing in a greater chance of additional tightening than is ultimately likely.
Technical Analysis: AUD/USD maintains a bullish bias above key EMAs
AUD/USD is trading around 0.7110 and retains a constructive technical outlook as the pair remains above both the nine-period and 50-period Exponential Moving Averages. The shorter-term EMA is positioned above the longer-term measure, reinforcing the pair’s positive near-term trend.
The 14-day Relative Strength Index stands at 65.84, approaching overbought territory. This indicates strong bullish momentum but also suggests that the recent advance may be becoming stretched.
Initial support is located around the nine-period EMA at 0.7074, followed by the 50-period EMA near 0.7028. Holding above these levels would keep the broader near-term bias tilted to the upside. However, with RSI elevated, further gains from current levels could increasingly give way to consolidation rather than a sustained straight-line rally.
EUR/USD pauses as oil-fueled inflation risks lend support to the US Dollar.
- EUR/USD holds steady near 1.1580 after retreating slightly from a two-month high.
- Higher oil prices revive inflation concerns and could strengthen expectations for another Fed rate hike, supporting the US Dollar.
- Growing expectations of a final 25-basis-point ECB rate increase in September continue to underpin the Euro.
EUR/USD remains largely unchanged around the 1.1575–1.1580 area during Tuesday’s Asian session, stabilizing after Monday’s modest decline from a two-month peak. However, a slight recovery in the US Dollar suggests caution before assuming the pair will resume its recent advance from the 1.1350 region, the July monthly low.
Last week’s softer US inflation figures and weaker consumer spending data reduced expectations for an imminent Federal Reserve rate increase, pushing the US Dollar Index to its lowest level since June 16 on Monday. However, the recent rise in crude oil prices has brought inflation concerns back into focus and could encourage the Fed to maintain a more hawkish policy stance. Persistent geopolitical risks are also supporting safe-haven demand for the Greenback, potentially limiting EUR/USD gains.
Tensions surrounding the Middle East remain a key market driver. US President Donald Trump said Washington does not intend to extend its Memorandum of Understanding with Iran, which expired on Monday. Trump also reiterated his proposal to place the strategically important Strait of Hormuz under US control and issued further warnings regarding Oman. The ongoing US-Iran standoff has pushed crude oil prices to a two-week high, increasing inflation risks and reinforcing expectations for at least one additional Fed rate hike before year-end.
Markets will therefore focus closely on Wednesday’s FOMC Minutes for fresh clues about the Federal Reserve’s future policy direction. The minutes could influence near-term USD movements and provide the next major catalyst for EUR/USD.
Meanwhile, expectations that the European Central Bank could deliver one final 25-basis-point rate increase at its September meeting continue to offer support to the Euro. This outlook could help limit the downside risk for EUR/USD in the near term.
Technical Analysis: EUR/USD faces key resistance near 1.1600
EUR/USD is trading just below the 50.0% Fibonacci retracement of the April–June decline, making this level an important near-term resistance zone. A sustained break above this barrier could strengthen the bullish outlook and open the way toward the 200-day Simple Moving Average near 1.1630, followed by the 61.8% Fibonacci retracement around 1.1647.
On the downside, initial support is located at the 38.2% Fibonacci retracement near 1.1522. A break below this level could expose the 23.6% retracement at 1.1445, while the broader structural support remains around the 1.1320 cycle low.
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