AUD/USD edges lower to near 0.7025 in the early Asian session on Monday. Iran has issued a warning regarding the potential for expanded strikes against the United States, which has led to an increase in safe-haven flows. The RBA is anticipated to raise interest rates to their highest level in 18 years. The AUD/USD pair experiences a decline to approximately 0.7025 in the early hours of the Asian session on Monday. The US Dollar strengthens against the Australian Dollar amid elevated geopolitical tensions in the Middle East. China’s RatingDog Manufacturing Purchasing Managers Index report is scheduled for release later on Monday. Traders will pay keen attention to the interest rate decision from the Reserve Bank of Australia on Tuesday. Source reported on Sunday that Iran’s Supreme Leader has instructed his senior military commanders to ready themselves for a renewed confrontation with the US and Israel, while also broadening Tehran’s options for retaliation. Ongoing tensions in the Middle East may enhance the appeal of a safe-haven currency like the Greenback in the near term. “Every level and type of threat must be met with an immediate, effective response, without geographical limitations,” said Khamenei. Last week, the US Federal Reserve maintained its benchmark federal funds rate at 3.75% to 4%. Policymakers expressed optimism that forthcoming data would provide clarity for their subsequent decision-making process. Traders are assigning a probability of 72.9% to the likelihood of a rate hike in December, as indicated by the CME FedWatch tool.
However, increasing expectations for a forthcoming interest rate hike may serve to mitigate the Australian dollar’s losses. The Australian central bank is expected to increase its Official Cash Rate by 25 basis points to 4.85% from 4.60% during its policy meeting in November on Tuesday. The RBA is intensifying its measures to manage Australia’s persistent inflation, which ranks among the highest in the developed world. Markets are currently assigning approximately 78% probability to an interest rate hike to 4.85% at the forthcoming RBA Board meeting, a rise from the 62% probability observed prior to the data release, as indicated by the ASX RBA Rate Tracker. According to source, the market is already assigning a substantial probability to further tightening from the RBA, with investors currently pricing “around an 80% chance of a November RBA rate hike.” Strategists note that, “unlike central bank rate hike pricing elsewhere in the world, the market is hesitant to price in more RBA rate hikes in the coming months, in line with our call.” As a result, TD argues that “with the market already pricing in another RBA rate hike in the near term, we would not expect the central bank decision to lend much further support for the AUD,” suggesting limited scope for additional currency upside purely on the back of policy expectations.
Fed’s Logan delivered a distinctly hawkish message, with an FXS Speechtracker score of 8/10, slightly above the established baseline of 7.7/10, underscoring a firmer tightening bias. The insistence that the Fed “needs at least two more quarter-point rate hikes” and that skipping a meeting does not alter the policy destination signals a clear commitment to pushing rates into modestly restrictive territory to tackle what is described as “unacceptable” inflation. Emphasis on gradual adjustments and clear communication suggests the Fed is trying to balance further tightening with limiting the risk of sharp economic deterioration while allowing households, businesses, and investors to adapt to higher rates. The FXS Fed Sentiment Index increased by 0.95 points to 143.62, indicating that the overall policy stance continues to be decisively hawkish, significantly surpassing the neutral threshold of 100. This move, aligned with the elevated FXS Speechtracker score, reflects market perceptions that robust growth, substantial consumer spending, and persistently supportive financial conditions provide leeway for further tightening in the Dollar bloc and beyond.
In the daily chart, AUD/USD is constrained just below the 100-day simple moving average, while maintaining a position above the Bollinger middle band. This situation results in a near-term outlook that is neutral-to-bearish, as the price oscillates between these conflicting indicators. The Relative Strength Index at approximately 52 is positioned near the midline, indicating only limited positive momentum that merely mitigates downside risk, while the overarching structure continues to be restricted beneath the 100-day SMA. On the topside, immediate resistance is observed at the 100-day SMA at 0.7030, with the subsequent barrier at the upper Bollinger band near 0.7065. A daily close above this level would be necessary to alter the bias toward a more favourable recovery. On the downside, initial support is provided by the Bollinger middle band around 0.6995, ahead of a deeper cushion at the lower band near 0.6925, where a break would reopen the path toward a more pronounced bearish extension.
