AUD/USD rose modestly after two days of declines, trading near 0.6960 during Thursday’s Asian session. The pair faces potential downside pressure as the US Dollar (USD) could strengthen following the Federal Reserve’s (Fed) interest‑rate hold that carried an underlying hawkish tone.
At its July meeting, the Fed kept the policy rate in the 3.5 %–3.75 % range—an outcome widely expected. However, the decision signaled a hawkish undercurrent.
Three regional Fed presidents—Lorie Logan of Dallas, Beth Hammack of Cleveland, and Neel Kashkari of Minneapolis—dissented, urging a 25‑basis‑point hike. Fed Chairman Kevin Warsh reinforced this stance at the post‑meeting press conference, stating that while the Fed will not provide forward guidance on future rate paths, it remains committed to taking all necessary steps to achieve its 2 % inflation target.
Fed’s Warsh Doubles Down on 2% Goal, Keeping Dollar Bulls Engaged
Warsh’s press‑conference tone was noticeably firmer than the usual baseline, with the FXS Speechtracker score rising to 7/10 from its historic 6/10, underscoring a tougher stance on inflation. His repeated emphasis that “only one target and it is 2 %” and that “inflation cannot be cured in 9 weeks” highlighted a patient but resolute approach to tightening. Warsh also noted “impressive resilience” in the economy and solid labor markets, stressing trend data over short‑term fluctuations, rejecting any tolerance for a higher inflation target, and pledging that the Committee “will not hesitate to act.” Together, these remarks reinforce a hawkish bias supportive of the Dollar.
Consequently, the FXS Fed Sentiment Index jumped by +18.94 points to 147.58, firmly in hawkish territory and aligning with the elevated Speechtracker tone. This reading, well above the neutral 100 mark, suggests markets should continue pricing a persistent anti‑inflation stance, with upside risks for the Dollar as Warsh’s resolve to hit the 2 % target remains clear.
The Australian Dollar (AUD) may encounter headwinds as Australia’s 10‑year government bond yield retreats toward 4.9 %, pulling back from recent multi‑week highs after weaker inflation data. Headline inflation unexpectedly fell to a four‑month low of 3.8 % in June, missing both May’s reading and market forecasts of 4.0 %. While inflation remains above the Reserve Bank of Australia’s (RBA) 2 %–3 % target range, the cooler figures caused markets to slash expectations for further rate hikes this year, dropping the probability to roughly 50 % from over 90 % before the data release.
Australia Inflation Holds Firm as RBA Focus Stays on Underlying Pressures
BNY strategists noted that Australia’s inflation pulse showed little easing in June, with headline CPI rising 3.8 % year‑over‑year in June 2026—unchanged from May. Underlying price pressures also persisted, as the trimmed‑mean measure of core inflation remained steady at 3.6 % y/y, flat month‑on‑month. The unchanged headline and core readings together underscore persistent inflation dynamics that keep the RBA’s policy focus and the Aussie’s performance in the spotlight.