0.7000 in sight as Australian Dollar retreats, with Middle East tensions outweighing hawkish RBA stance

• 0.7010 is the Australian Dollar's approximate trading level on Thursday, following a retreat from a fresh monthly high.
• Risk-sensitive currencies face pressure from higher Oil prices and a resurgence in Middle East geopolitical tensions.
• Further declines are cushioned by hawkish remarks from Australian central bank officials and US Dollar weakness.

0.7010 is where AUD/USD trades at the time of writing on Thursday. The pair is down 0.21% on the day as the Australian Dollar (AUD) pulls back from a fresh monthly high. Escalating Middle East geopolitical tensions and rising Oil prices pressure the risk-sensitive currency. However, the decline is contained by the Reserve Bank of Australia's (RBA) hawkish stance and a softer US Dollar (USD).

Fresh concerns over a possible escalation in the Middle East have weakened market sentiment. Fears of energy supply disruptions have intensified following reports of a drone attack on Saudi Arabia's Shaybah Oil field and the departure 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 dampen economic activity.

The RBA's relatively hawkish position continues to support the Australian Dollar despite the adverse 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 increases may be necessary.

Earlier this week, RBA Assistant Governor Christopher Kent also suggested that neutral interest rates may be moving higher in Australia and worldwide. Ahead of the central bank's 3 November meeting, his remarks bolster expectations for tighter monetary policy.

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

Broad US Dollar weakness nevertheless remains a constraint on AUD/USD losses. The Greenback is 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 for Australia and the United States are the next focus for investors. The figures could offer more insight into economic activity across both countries. Upcoming monetary policy decisions from the Fed and RBA are also drawing attention.

AUD/USD technical outlook

0.7016 is AUD/USD's level on the one-hour chart. Trading above the 100-period simple moving average (SMA) at 0.6996 and the 200-period SMA at 0.6978 gives the pair a mildly supported bias. However, the Relative Strength Index (RSI) remains neutral just below 50, pointing to near-term consolidation rather than a directional move.

An initial upside barrier stands at 0.7020, followed by stronger resistance at the horizontal level near 0.7037. Immediate downside support lies around 0.6996 at the 100-period SMA, with additional support from the nearby horizontal floor at 0.6994. A more substantial retreat would bring the 200-period SMA at 0.6978 into view as the next important demand area.

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