Australian Dollar Weakens on Middle East Tensions and Cool Inflation
The Australian Dollar (AUD) remains under pressure as escalating tensions in the Middle East drive demand for the safe-haven US Dollar. The conflict in Yemen, fueled by Saudi-backed forces and Iran-aligned Houthi groups, has intensified, particularly with the seizure of the Bab el-Mandeb strait, a critical route for crude oil exports. This geopolitical uncertainty has strengthened the USD, pushing the AUD/USD pair lower to around 0.6940 during European trading hours on Monday.
Domestically, cooler-than-expected inflation data for August has reduced market expectations for another interest rate hike by the Reserve Bank of Australia (RBA) in November. Despite the RBA maintaining rates at a 15-year high of 4.6% in September, the AUD continues to weaken due to soft economic data and broader USD strength. Investors are also awaiting the US ISM Services Purchasing Managers Index for further market direction.
Technical analysis indicates that the AUD/USD pair is trading at 0.6940, with both short-term and medium-term exponential moving averages suggesting a bearish bias. The 14-day Relative Strength Index (RSI) at 29.3 has entered oversold territory, which may signal a potential moderation in the downtrend if selling pressure eases. Key resistance levels are identified at 0.6987 and 0.7069, while support is found at 0.6667.
Additionally, Fed officials have adopted a more hawkish stance, with Christopher Logan emphasizing the need for further rate hikes to achieve price stability. This stance has reinforced the USD's strength, further weighing on the AUD. Market participants now assign a 77.9% probability that the Fed will maintain its current benchmark interest rates at its upcoming policy meeting.