Australian Dollar climbs above 0.7000 as hopes of an Iran deal lift risk sentiment

• The Australian Dollar strengthens against the US Dollar as improving prospects for a US-Iran agreement boost risk appetite.
• Strong Australian employment and inflation indicators reinforce expectations that the RBA will maintain a hawkish stance.
• Investors now turn their attention to the US July employment report, which could shape expectations for the Fed's next policy moves.

AUD/USD trades around 0.7035 on Tuesday at the time of writing, up 0.50% on the day. The pair is supported by improving market sentiment after US Treasury Secretary Scott Bessent said that an agreement with Iran to reopen the Strait of Hormuz could be reached as soon as Tuesday or Wednesday. His comments triggered a sharp decline in Oil prices as markets priced in a gradual normalization of global Energy supplies.

The improvement in risk sentiment is supporting the Australian Dollar (AUD), a currency that typically performs well during periods of stronger investor confidence. Although Iranian officials previously denied holding direct negotiations with Washington, investors are currently focusing on the prospect of easing tensions in the Middle East.

The Australian Dollar is also drawing support from encouraging domestic data. ANZ-Indeed Job Ads rose by 2% in July after declining 0.2% in the previous month, highlighting resilient labor demand despite a cooling economy. At the same time, the TD-MI Inflation Gauge rebounded by 1% MoM, marking its first increase since April and reinforcing concerns that inflationary pressures are re-emerging.

In recent remarks, Reserve Bank of Australia (RBA) Governor Michele Bullock reiterated that underlying inflation remains too high and warned that price pressures could accelerate further, partly due to previous energy market disruptions. Her comments continue to support expectations for a restrictive monetary policy stance, with markets still fully pricing in one additional rate hike this year.

In the United States (US), investors are now focused on the July employment report due on Friday. A stronger-than-expected set of labor market data could reinforce expectations that the Federal Reserve (Fed) will keep interest rates higher for longer, limiting downside pressure on the US Dollar (USD). At the same time, the recent decline in Energy prices has eased expectations of monetary tightening as markets continue to reassess the outlook for US monetary policy. According to the CME FedWatch Tool, the chances for a September rate hike fall to 56.9% from 67.2% a day earlier.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.7038, maintaining a bullish near-term bias as price holds above the 100-period simple moving average (SMA) at 0.7003 and the 200-period SMA at 0.6992. The pair also trades above the upward-sloping trend-line support around 0.7008 and the horizontal support around 0.7020, while the Relative Strength Index (RSI) near 70 hints at strong but increasingly stretched upside momentum.

On the downside, initial support is located at the horizontal level around 0.7020, followed by the trend-line area near 0.7008 and then the 100-period SMA at 0.7003, ahead of deeper protection from the 200-period SMA at 0.6992. On the topside, immediate resistance is seen at 0.7050, where a sustained break higher would open the way for an extension of the current advance.

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