The Australian dollar weakened against a basket of major currencies during Thursday's Asian session, pulling back from its highest level in seven weeks against the US dollar and heading for its first decline in three sessions as investors locked in recent gains. The move also coincided with a modest recovery in the US dollar ahead of key US labor market data.

The Reserve Bank of Australia is scheduled to meet next week to review monetary policy, with markets widely expecting policymakers to leave interest rates unchanged as inflationary pressures continue to ease and oil prices remain lower.

The Price

The Australian dollar fell 0.2% against the US dollar to 0.7045, after opening the session at 0.7056. It touched an intraday high of 0.7060.

On Wednesday, the Australian dollar gained 0.15% against its US counterpart, marking its second consecutive daily advance and reaching a seven-week high of US70.65 cents, supported by hopes that the United States and Iran could reach a peace agreement to end the conflict in the Middle East.

US dollar

The US Dollar Index rose more than 0.1% on Thursday, rebounding against a basket of major and secondary currencies after two consecutive sessions of losses.

The recovery came as investors awaited further details on potential peace negotiations between the United States and Iran, while also positioning ahead of key US labor market data that could provide fresh clues about the likelihood of another Federal Reserve interest rate hike this year.

Iran developments

Iran announced that it had reached an agreement with Oman on a shipping route through the Strait of Hormuz, marking an important step toward reopening the strategic waterway.

A final agreement to end the military escalation remains contingent on broader understandings with the United States.

US officials, including Secretary of State Marco Rubio, said progress had been made in the talks but stressed that key issues, particularly the management of shipping routes and potential transit fees, remain unresolved.

President Donald Trump said an agreement was close, while maintaining pressure on Tehran to accept a broader settlement. Iran, meanwhile, continued to deny holding direct negotiations with Washington.

Australian interest rates

The Reserve Bank of Australia will meet on August 11 to assess economic conditions and determine the appropriate monetary policy stance. Markets broadly expect the central bank to leave interest rates unchanged for a second consecutive meeting.

Following Australia's latest inflation data, market pricing for a 25-basis-point rate hike in August dropped sharply from 25% to just 5%.

Australian dollar outlook

We expect the Australian dollar to remain under modest pressure against the US dollar in the near term as profit-taking continues following its recent gains.

Risk appetite could improve again if the United States and Iran reach an agreement that formally ends the military escalation and guarantees the reopening of the Strait of Hormuz, potentially supporting another round of gains for risk-sensitive currencies against the US dollar.