Australian Dollar eases below 0.7050 as risk aversion weighs ahead of China's Manufacturing PMI data

• Near 0.7025, AUD/USD trades slightly lower in early Asian trading on Monday.
• Safe-haven demand strengthens as Iran threatens wider strikes against the US.
• An expected RBA interest rate increase would take rates to an 18-year high.

China’s RatingDog Manufacturing Purchasing Managers Index (PMI) report is scheduled for release later on Monday, ahead of Tuesday’s closely watched Reserve Bank of Australia (RBA) interest rate decision. In early Asian trading on Monday, AUD/USD slips to around 0.7025 as heightened geopolitical tensions in the Middle East support the US Dollar (USD) against the Australian Dollar (AUD).

Iran’s Supreme Leader has instructed senior military commanders to ready themselves for another confrontation with the US and Israel and broaden Tehran’s retaliatory options, Bloomberg reported on Sunday. With tensions persisting in the Middle East, the Greenback could attract further safe-haven demand in the near term.

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

At last week’s meeting, the US Federal Reserve (Fed) held its benchmark federal funds rate at 3.75% to 4%. Policymakers said they hoped forthcoming data would guide their next decision. The CME FedWatch tool puts the probability traders assign to a December rate increase at 72.9%.

Rising expectations of an imminent rate increase could, however, cushion the Aussie’s decline. At its November policy meeting on Tuesday, the Australian central bank is expected to lift its Official Cash Rate (OCR) from 4.60% to 4.85%, an increase of 25 basis points (bps).

With Australian inflation proving persistent and 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, markets now assign nearly 78% odds to a rise in interest rates to 4.85% at the next RBA Board meeting. That compares with 62% before the data release.

Aussie’s further upside constrained by RBA rate expectations

Further RBA tightening already carries a substantial probability in market pricing, TD Securities says, with investors allowing for “around an 80% chance of a November RBA rate hike.” Its 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.” TD therefore 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 limited room for additional currency gains driven solely by policy expectations.

Logan signals at least two further Fed hikes towards modestly restrictive policy

An FXS Speechtracker score of 8/10, slightly above the established baseline of 7.7/10, highlights the distinctly hawkish tone of Fed official Logan’s remarks and a stronger inclination towards tightening. By insisting that the Fed "needs at least two more quarter-point rate hikes" and that pausing for a meeting would not change the policy destination, Logan signalled a clear determination to move rates into modestly restrictive territory to address inflation described as "unacceptable". The focus on measured adjustments and clear communication suggests an attempt to reconcile further tightening with the need to contain the risk of a sharp economic slowdown, 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, indicating that the wider policy tone remains decidedly hawkish and well above the neutral 100 level. Alongside the high FXS Speechtracker score, the rise reflects market perceptions that robust growth, resilient consumer spending and still-supportive financial conditions provide scope for further tightening across the Dollar bloc and beyond.

Technical Analysis: AUD/USD faces resistance below the 100-day SMA

On the daily chart, the Bollinger middle band continues to support AUD/USD, but the 100-day simple moving average (SMA) caps it just above current levels. This compression between the two indicators leaves the short-term outlook neutral-to-bearish. At about 52, the Relative Strength Index (RSI) is close to its midpoint, pointing to modest positive momentum. That provides only a limited counterweight to downside risks while the broader price structure remains constrained beneath the 100-day SMA.

The 100-day SMA at 0.7030 presents the first resistance level, followed by the upper Bollinger band near 0.7065. A daily close above that upper band would be required to favour a more sustained recovery. Initial support lies around 0.6995 at the Bollinger middle band, with the lower band near 0.6925 offering a further cushion. A break below the latter would clear the way for a more substantial extension of the decline.

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