Australian Dollar retreats toward 0.7000 as Middle East tensions overshadow hawkish RBA

• The Australian Dollar retreats from a fresh monthly high, trading near 0.7010 on Thursday.
• Rising Oil prices and renewed geopolitical tensions in the Middle East weigh on risk-sensitive currencies.
• Hawkish comments from Australian central bank officials and a weaker US Dollar help limit further losses.

AUD/USD trades around 0.7010 on Thursday at the time of writing, down 0.21% on the day, as the Australian Dollar (AUD) retreats from a fresh monthly high. Rising geopolitical tensions in the Middle East and higher Oil prices weigh on the risk-sensitive currency, although a hawkish Reserve Bank of Australia (RBA) and a weaker US Dollar (USD) help limit the decline.

Market sentiment deteriorates amid renewed fears of an escalation in the Middle East. Reports of a drone attack on Saudi Arabia's Shaybah Oil field and the withdrawal of some US diplomatic personnel from the Gulf region have raised concerns about potential disruptions to energy supplies.

West Texas Intermediate (WTI) Oil prices have risen in response to these developments, increasing pressure on the Australian Dollar. As a net energy importer, Australia remains vulnerable to higher Oil prices, which can increase import costs and weigh on economic activity.

Despite the unfavorable risk environment, the Australian Dollar benefits from the relatively hawkish stance of the RBA. Deputy Governor Andrew Hauser warned on Thursday that trimmed-mean inflation for the third quarter could exceed expectations, reinforcing speculation that the central bank may need to raise interest rates further.

Earlier this week, RBA Assistant Governor Christopher Kent also indicated that neutral interest rates may be rising both in Australia and globally. These comments support expectations of tighter monetary policy ahead of the central bank's November 3 meeting.

Meanwhile, stronger-than-expected Chinese Gross Domestic Product (GDP) growth in the third quarter provides additional support for the Australian Dollar, given Australia's close trade relationship with China.

Nevertheless, the broader weakness of the US Dollar continues to limit the downside for AUD/USD. Declining US Treasury bond yields and recent comments from Federal Reserve (Fed) officials suggesting no urgency to raise interest rates at the October 27-28 meeting weigh on the Greenback.

Looking ahead, investors await the preliminary Purchasing Managers Index (PMI) figures from Australia and the United States, scheduled for Friday. These releases could provide further insight into economic activity in both countries, while attention also turns to the upcoming Fed and RBA monetary policy decisions.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7016. The pair holds above the 100-period simple moving average (SMA) at 0.6996 and the 200-period SMA at 0.6978, suggesting a mildly supported tone despite the neutral Relative Strength Index (RSI) hovering just below the 50 mark, which hints at a consolidative rather than directional environment in the near term.

On the topside, initial resistance is seen at 0.7020, with a stronger cap aligned at the horizontal barrier near 0.7037. On the downside, immediate support emerges from the 100-period SMA around 0.6996, reinforced by the nearby horizontal floor at 0.6994, while a deeper pullback would expose the 200-period SMA at 0.6978 as the next significant demand area.

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