Risk-off sentiment weighs on Australian Dollar below 0.7050 as China's Manufacturing PMI approaches

• Selling pressure takes AUD/USD towards 0.7025 in early Asian trade on Monday.
• Safe-haven demand rises as Iran threatens wider strikes against the US.
• An expected RBA interest rate increase would take rates to an 18-year high.

Pressure on the Australian Dollar (AUD) pushes AUD/USD down towards 0.7025 in Monday’s early Asian session, as heightened Middle East geopolitical tensions support the US Dollar (USD). Later on Monday, China is due to release its RatingDog Manufacturing Purchasing Managers Index (PMI) report. Attention will also turn to Tuesday’s Reserve Bank of Australia (RBA) interest rate decision, which traders will watch closely.

Safe-haven demand could lend near-term support to the Greenback if tensions in the Middle East persist. In a report on Sunday, Bloomberg said Iran’s Supreme Leader had instructed his senior military commanders to ready themselves for renewed confrontation with the US and Israel and broaden Tehran’s options for retaliation.

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

With the benchmark federal funds rate held at 3.75% to 4% last week, US Federal Reserve (Fed) policymakers said they hoped forthcoming data would guide their next decision. A December rate increase now carries a 72.9% probability in traders’ pricing, according to the CME FedWatch tool.

The Aussie could, however, find some protection against further losses from mounting expectations of a near-term interest 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 Australia’s persistent inflation among the highest in the developed world, the RBA is intensifying its efforts to bring price pressures under control.

According to the ASX RBA Rate Tracker, the probability priced in by markets for an increase to 4.85% at the next RBA Board meeting is now nearly 78%, compared with 62% before the data release.

Can the Aussie extend gains with RBA tightening already priced in?

Further RBA tightening already commands a sizeable probability in market pricing, according to TD Securities, with investors allowing for “around an 80% chance of a November RBA rate hike.” The strategists observe 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 says 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,” implying that policy expectations alone offer limited room for additional currency gains.

Why does Logan see at least two more hikes before the Fed reaches a modestly restrictive stance?

A stronger tightening bias was evident in Fed’s Logan’s clearly hawkish remarks: the FXS Speechtracker score stood at 8/10, marginally higher than the established baseline of 7.7/10. By stressing that the Fed "needs at least two more quarter-point rate hikes" and that a pause at one meeting would not change the ultimate policy destination, Logan signalled a firm commitment to taking rates into modestly restrictive territory to address inflation described as "unacceptable". The focus on measured adjustments and clear communication suggests an effort to pursue further tightening without risking a sharp deterioration in the economy, while giving households, businesses and investors time to adjust to higher rates.

A 0.95-point increase took the FXS Fed Sentiment Index to 143.62, keeping the wider policy tone firmly hawkish and comfortably above the neutral 100 level. Alongside the high FXS Speechtracker score, the rise points to market perceptions that robust growth, resilient consumer spending and financial conditions that remain supportive provide scope for more tightening across the Dollar bloc and beyond.

Technical Analysis: Can AUD/USD break above the 100-day SMA?

With AUD/USD trading just below the 100-day simple moving average (SMA) but above the Bollinger middle band on the daily chart, the near-term outlook remains neutral-to-bearish. Price action is narrowing between these two reference levels. At about 52, the Relative Strength Index (RSI) is close to its midline and indicates only mildly positive momentum. That provides little more than a cushion against downside risk, as the broader structure remains constrained beneath the 100-day SMA.

A move higher would first encounter the 100-day SMA at 0.7030, followed by the upper Bollinger band near 0.7065. A daily close above the latter would be required to turn the bias towards a more constructive recovery. Below current levels, the Bollinger middle band around 0.6995 offers initial support, followed by the lower band near 0.6925. A break beneath that lower band would clear the way for a more pronounced extension of the decline.

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