Australian Dollar Weakens on Middle East Tensions and Cool Inflation
The Australian Dollar (AUD) is weakening against the US Dollar (USD) as rising Middle East tensions boost demand for safe-haven assets. The AUD/USD pair is trading around 0.6940 during European hours on Monday, down from modest gains earlier. The conflict in Yemen, particularly the Houthi forces' seizure of the Bab el-Mandeb strait, a critical oil shipping route, has heightened geopolitical risks, strengthening the USD.
Market focus is also on the US ISM Services Purchasing Managers Index due later in the day, which could provide further direction. Meanwhile, expectations for a Federal Reserve rate hike have shifted, with markets now pricing in a nearly 78% chance the Fed will keep rates steady at its upcoming meeting, up from 74% before the latest employment data. This reflects growing belief that a cooling job market will keep rates unchanged.
The AUD is struggling after August inflation figures fell short of expectations, reducing the likelihood of another interest rate hike by the Reserve Bank of Australia (RBA) in November. The RBA had already raised its cash rate to a 15-year high of 4.6% in September, leaving the Aussie vulnerable to broader USD strength. Technical analysis shows AUD/USD trading at 0.6940, with the pair extending its decline below key moving averages, indicating a bearish near-term bias.
Fed official Christopher Logan recently delivered a hawkish message, suggesting further rate hikes may be needed to tighten policy. His remarks reinforced a stance that supports the USD, as he emphasized the need for stronger economic expansion and price stability.