Australian Dollar retreats as Fed hawkish stance, Iran tensions boost US Dollar

• The Australian Dollar retreats by 0.24% on Monday as the US Dollar recovers from early losses.
• The Federal Reserve's hawkish stance and renewed tensions involving Iran support demand for safe-haven assets.
• Investors await US inflation figures and a speech by Fed Chair Kevin Warsh for further monetary policy clues.

AUD/USD trades around 0.6965 on Monday, down 0.24% on the day at the time of writing, after giving up its earlier gains. The Australian Dollar (AUD) struggles to maintain its upward momentum against the US Dollar (USD), as persistent geopolitical tensions and expectations of further monetary tightening by the Federal Reserve (Fed) support the Greenback.

The US Dollar initially weakened at the start of the week, pressured by a pullback in US Treasury bond yields from multi-year highs. Optimism surrounding a potential energy agreement between Russia and Ukraine also helped ease concerns about global fuel shortages and inflationary pressures. However, the Greenback subsequently recovered as investors remained cautious about the monetary policy outlook and geopolitical developments.

The Fed's hawkish stance continues to provide underlying support for the US currency. Although investors have reduced their expectations of an interest rate increase at the late-October meeting, the possibility of a 25-basis-point rate hike in December remains on the table.

Geopolitical uncertainty is also limiting the Australian Dollar's recovery. Over the weekend, Yemen's Iran-backed Houthi movement intensified its attacks against Saudi Arabia, targeting Riyadh's King Khalid International Airport with missiles and drones. Meanwhile, US President Donald Trump raised the possibility of renewed military strikes against Iran, increasing concerns about a broader escalation in the Middle East.

These developments support demand for the US Dollar as a safe-haven currency, while weighing on the risk-sensitive Australian Dollar. The Aussie remains particularly vulnerable to shifts in global risk sentiment, especially when geopolitical tensions coincide with expectations of restrictive US monetary policy.

Looking ahead, investors are focusing on key US inflation releases scheduled for this week. The Producer Price Index (PPI) is due on Wednesday, followed by the Consumer Price Index (CPI) on Thursday. Stronger-than-expected inflation figures could reinforce expectations of further Fed tightening, potentially providing additional support for the US Dollar and increasing downward pressure on AUD/USD.

Market participants will also closely monitor Fed Chair Kevin Warsh's speech at the annual meetings of the International Monetary Fund (IMF) and World Bank in Bangkok on Friday. His remarks could offer further insights into the Fed's policy outlook and influence the direction of the US Dollar.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.6966, keeping a bearish intraday tone as it holds beneath the 100-hour simple moving average (SMA) at 0.6970 while only marginally above the 200-hour SMA near 0.6960. The Relative Strength Index (RSI) at 39 shows soft momentum on the downside, suggesting sellers retain the initiative as rebounds struggle to clear nearby moving average resistance.

On the topside, initial resistance is located at the 100-hour SMA at 0.6970, followed by the horizontal barriers at 0.6995 and 0.7005, with stronger caps then seen at 0.7045, 0.7075, 0.7105 and 0.7140. On the downside, immediate support emerges at 0.6932, ahead of 0.6904 and 0.6883, while a clean break below these levels would turn attention back to the 200-hour SMA around 0.6960 as the broader bearish structure develops.

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