Australian Dollar remains subdued as Consumer Inflation Expectations fall in July

AUD/USD loses ground after two days of gains, trading around 0.7000 during the Asian hours on Thursday. The pair remains in negative territory as the Australian Dollar (AUD) holds losses following the release of the Consumer Inflation Expectations, which fell by 0.8% in July to 4.7%, from 5.5% prior.

Following the spike in trimmed mean inflation expectations recorded in April, inflation expectations have moderated for a third month running. Wage expectations, by comparison, have remained unchanged for the past eight months.

The AUD/USD pair depreciates as the safe-haven demand surges in response to aggressive US military actions. The US has launched multiple waves of strikes against Iranian coastal military assets and reinstated a naval blockade of Iran.

The Guardian reported that US Central Command (CENTCOM) launched yet another wave of strikes in a concerted effort to keep the critical Strait of Hormuz waterway open. In a direct escalation, CENTCOM confirmed that US aircraft fired missiles into an oil tanker’s smokestack within the strategic passage, effectively disabling the vessel and keeping global markets on edge.

Unpredictability surrounding the conflict heightened after US President Donald Trump stated to reporters that he "does not like giving deadlines" when questioned on whether Iran faces a strict timeline before the US begins targeting domestic infrastructure, such as Iranian bridges.

Federal Reserve (Fed) Chair Kevin Warsh said on Wednesday that current inflation pressure will not be permanent, while acknowledging that the latest inflation measures remain unsatisfactory.

Warsh downplays inflation signal from AI, keeps Fed tone steady for Dollar

Fed Chair Warsh’s testimony scores 5.4/10 on the FXS Speechtracker, notably softer relative to the historical average of 7/10 and signaling a more cautious, nuanced tone. By calling recent inflation data an “imperfect gauge” of underlying pressures and framing AI as a source of both disruption and long-run job and wage gains, Warsh emphasizes uncertainty around the inflation path while stressing that whether AI proves inflationary ultimately depends on Fed policy. The net effect is a balanced message that tempers hawkish conviction, limiting immediate implications for the Dollar and broader risk sentiment.

The FXS Fed Sentiment Index was unchanged, moving 0.00 points to remain at a firmly hawkish 126.13, indicating that despite the softer speech score, the broader policy backdrop still leans toward a tightening bias. The combination of a steady FXS Fed Sentiment Index and a below-baseline FXS Speechtracker reading suggests markets will see Warsh’s AI remarks as a refinement of the inflation narrative rather than a shift away from the existing hawkish stance.