Below 0.7050: Australian Dollar Eases as Risk Aversion Builds Ahead of China's Manufacturing PMI Data

0.7025 in focus as AUD/USD slips in early Asian trading on Monday.
Safe-haven demand rises as Iran threatens wider strikes against the US.
An RBA rate increase is expected to take borrowing costs to an 18-year high.

AUD/USD slips to around 0.7025. The decline comes in Monday’s early Asian session as heightened Middle East geopolitical tensions lift the US Dollar (USD) against the Australian Dollar (AUD). Later on Monday, China will release its RatingDog Manufacturing Purchasing Managers Index (PMI) report. Tuesday’s Reserve Bank of Australia (RBA) interest rate decision will also be a key focus for traders.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Iran’s Supreme Leader has instructed senior military commanders to prepare for fresh confrontation with the US and Israel and broaden Tehran’s retaliation options, Bloomberg reported on Sunday. With Middle East tensions persisting, safe-haven currencies such as the Greenback could draw support in the near term.

Khamenei said: “Every level and type of threat must be met with an immediate, effective response, without geographical limitations,”

A 72.9% probability of a December rate increase is priced in by traders, according to the CME FedWatch tool. Last week, the US Federal Reserve (Fed) held its benchmark federal funds rate at 3.75% to 4%. Policymakers said they hoped forthcoming data would provide guidance for their next decision.

The Aussie’s downside could nevertheless be contained by mounting expectations of an imminent rate increase. At Tuesday’s November policy meeting, the Australian central bank is likely to lift its Official Cash Rate (OCR) from 4.60% to 4.85%, an increase of 25 basis points (bps).

With Australian inflation remaining stubborn and among the highest in the developed world, the RBA is intensifying efforts to bring it under control.

Nearly 78% odds of a rise to 4.85% at the next RBA Board meeting are now reflected in market pricing, according to the ASX RBA Rate Tracker. That compares with 62% before the data release.

80% November hike pricing leaves limited room for Aussie gains

Further RBA tightening already carries a substantial probability in market pricing, according to TD Securities. Investors are factoring in “around an 80% chance of a November RBA rate hike.” The strategists add that, “unlike central bank rate hike pricing elsewhere in the world, the market is hesitant to price in more RBA rate hikes in the coming months, in line with our call.” On that basis, TD argues that “with the market already pricing in another RBA rate hike in the near term, we would not expect the central bank decision to lend much further support for the AUD,” leaving little room for additional currency gains driven solely by policy expectations.

At least two more hikes: Logan signals modestly restrictive Fed policy

An FXS Speechtracker score of 8/10, slightly above the established 7.7/10 baseline, highlighted the distinctly hawkish tone of Fed’s Logan and a stronger tightening bias. Logan’s insistence that the Fed "needs at least two more quarter-point rate hikes", together with the view that skipping a meeting would not change the policy destination, points to a firm commitment to moving rates into modestly restrictive territory to address "unacceptable" inflation. The focus on measured adjustments and clear communication suggests an effort to limit the risk of a sharp economic downturn while tightening further. It would also give households, businesses and investors time to adjust to higher rates.

A 0.95-point increase took the FXS Fed Sentiment Index to 143.62, confirming that the overall policy tone remains firmly hawkish and well above the neutral 100 threshold. Together with the high FXS Speechtracker score, the rise reflects market perceptions that robust growth, resilient consumer spending and still-supportive financial conditions allow scope for further tightening across the Dollar bloc and beyond.

100-day SMA caps AUD/USD: Technical Analysis

On the daily chart, AUD/USD remains squeezed between the 100-day simple moving average (SMA) just overhead and the Bollinger middle band below. This positioning keeps the near-term outlook neutral-to-bearish. At about 52, the Relative Strength Index (RSI) is close to its midpoint, indicating only mild positive momentum. That offers some restraint on downside risk but leaves the broader structure constrained beneath the 100-day SMA.

The 100-day SMA at 0.7030 provides the first resistance, followed by the upper Bollinger band near 0.7065. A daily close above the latter would be required to turn the outlook towards a more constructive recovery. Initial support sits at the Bollinger middle band around 0.6995. Below that, the lower band near 0.6925 offers a deeper buffer; a break would clear the way for a more substantial bearish extension.

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

Australian Dollar: key questions

Australian Dollar: what are the main drivers?

Interest rates set by the Reserve Bank of Australia (RBA) are a major influence on the Australian Dollar (AUD). Australia’s resource-rich economy also makes the price of iron ore, its largest export, an important driver. Other influences include economic conditions in China, Australia’s largest trading partner, alongside domestic inflation, economic growth and the trade balance. Investor sentiment matters too: a willingness to hold riskier assets, known as risk-on, supports the AUD, while risk-off describes a preference for safe havens.

RBA policy: how does it affect the Australian Dollar?

By setting the interest rate at which Australian banks can lend to one another, the Reserve Bank of Australia (RBA) affects borrowing costs throughout the economy and, in turn, the Australian Dollar (AUD). Its primary objective is to keep inflation stable at 2-3%, using increases or reductions in interest rates. Rates that are relatively high compared with those of other major central banks tend to support the AUD; relatively low rates have the reverse effect. Credit conditions can also be influenced through quantitative easing or tightening. Easing is negative for the AUD, whereas tightening is positive.

China’s economy: what does it mean for the Australian Dollar?

As Australia’s biggest trading partner, China has a significant influence on the Australian Dollar (AUD). A strong Chinese economy buys more Australian raw materials, goods and services, increasing demand for the AUD and lifting its value. When Chinese growth falls short of expectations, the reverse applies. Chinese growth figures that surprise either positively or negatively therefore often feed directly into the Australian Dollar and its currency pairs.

Iron ore prices: how do they influence the Australian Dollar?

At $118 billion a year, according to 2021 data, iron ore is Australia’s largest export, with China the main destination. Its price can therefore influence the Australian Dollar. Rising iron ore prices generally lift the AUD as overall demand for the currency increases; falling prices usually have the opposite effect. Higher prices also make a positive Australian trade balance more likely, providing another source of support for the AUD.

Trade balance: why does it matter for the Australian Dollar?

Another influence on the Australian Dollar is the trade balance, which measures export earnings against expenditure on imports. Strong overseas demand for Australian exports creates demand for its currency. When that demand exceeds the amount spent on buying imports, the resulting surplus supports the currency’s value. A positive net trade balance therefore strengthens the AUD, while a negative balance has the reverse effect.