Australian Dollar falls towards 0.7000 as hawkish RBA is eclipsed by Middle East tensions

• Near 0.7010 on Thursday, the Australian Dollar pulls back from a new monthly peak.
• Risk-sensitive currencies come under pressure as Oil prices climb and geopolitical tensions flare again in the Middle East.
• Further declines are contained by hawkish remarks from Australian central bank officials and US Dollar weakness.

A 0.21% daily decline leaves AUD/USD trading around 0.7010 at the time of writing on Thursday, with the Australian Dollar (AUD) easing from a new monthly peak. Higher Oil prices and mounting geopolitical tensions in the Middle East put pressure on the risk-sensitive currency. However, the decline is cushioned by the Reserve Bank of Australia's (RBA) hawkish stance and a softer US Dollar (USD).

Fresh concerns about an escalation in the Middle East have dampened market sentiment. Fears of possible energy supply disruptions have intensified following reports of a drone attack on Saudi Arabia's Shaybah Oil field and the withdrawal of some US diplomatic personnel from the Gulf region.

These developments have pushed West Texas Intermediate (WTI) Oil prices higher, adding to the pressure on the Australian Dollar. Australia's position as a net energy importer leaves it exposed to rising Oil prices, which can lift import costs and hamper economic activity.

The RBA's relatively hawkish position nevertheless offers support to the Australian Dollar against this unfavourable risk backdrop. On Thursday, Deputy Governor Andrew Hauser cautioned that third-quarter trimmed-mean inflation could surpass expectations. His warning strengthened speculation that further interest rate rises may be necessary.

Neutral interest rates may be moving higher in Australia and worldwide, RBA Assistant Governor Christopher Kent also suggested earlier this week. Ahead of the central bank's 3 November meeting, those remarks lend support to expectations for tighter monetary policy.

Australia's close trading ties with China provide another source of support for its currency, as Chinese Gross Domestic Product (GDP) growth exceeded expectations in the third quarter.

Broader US Dollar weakness also continues to cushion AUD/USD against further declines. The Greenback remains under pressure from falling US Treasury bond yields and recent remarks by Federal Reserve (Fed) officials indicating no urgency to increase interest rates at the 27-28 October meeting.

Friday's preliminary Purchasing Managers Index (PMI) releases from Australia and the United States are next on investors' radar. The figures could offer further clues about economic activity in both countries. The forthcoming Fed and RBA monetary policy decisions are also coming into focus.

AUD/USD holds above key moving averages in technical trading

At 0.7016 on the one-hour chart, AUD/USD remains above both the 100-period simple moving average (SMA) at 0.6996 and the 200-period SMA at 0.6978. This positioning points to modest underlying support. However, the neutral Relative Strength Index (RSI), sitting just below 50, suggests near-term consolidation rather than a clear directional move.

Initial resistance stands at 0.7020, followed by a more substantial horizontal barrier near 0.7037. Immediate support lies around 0.6996 at the 100-period SMA, with the nearby horizontal floor at 0.6994 providing reinforcement. A larger retreat would bring the 200-period SMA at 0.6978 into view as the next notable demand area.

(The technical analysis of this story was written with the help of an AI tool. Know more.)