Why is the Australian Dollar retreating towards 0.7000 as Middle East tensions outweigh a hawkish RBA?

• After reaching a fresh monthly high, the Australian Dollar pulls back to trade near 0.7010 on Thursday.
• Risk-sensitive currencies come under pressure as Oil prices climb and geopolitical tensions resurface in the Middle East.
• Further declines are cushioned by a softer US Dollar and hawkish remarks from Australian central bank officials.

Pressure from higher Oil prices and mounting Middle East tensions pulls the risk-sensitive Australian Dollar (AUD) back from a fresh monthly high. At the time of writing on Thursday, AUD/USD is trading around 0.7010, a decline of 0.21% on the day. However, the fall is contained by the Reserve Bank of Australia's (RBA) hawkish stance and a weaker US Dollar (USD).

Risk appetite weakens as concerns over a fresh escalation in the Middle East return. Fears of possible energy supply disruptions have intensified following reports of a drone attack on Saudi Arabia's Shaybah Oil field and the withdrawal of some US diplomatic personnel from the Gulf region.

These developments have pushed West Texas Intermediate (WTI) Oil prices higher, adding to the pressure on the Australian Dollar. Australia's position as a net energy importer leaves it exposed to rising Oil prices, which can lift import costs and dampen economic activity.

The RBA's comparatively hawkish policy stance nevertheless lends support to the Australian Dollar despite the adverse risk backdrop. On Thursday, Deputy Governor Andrew Hauser cautioned that third-quarter trimmed-mean inflation could come in above expectations. His warning strengthened speculation that further interest rate increases may be necessary.

Expectations of tighter monetary policy ahead of the central bank's 3 November meeting have also been supported by remarks from RBA Assistant Governor Christopher Kent earlier this week. Kent suggested that neutral interest rates may be moving higher in Australia as well as globally.

Australia's close trading ties with China offer another source of support for its currency, following stronger-than-expected Chinese Gross Domestic Product (GDP) growth in the third quarter.

Further downside in AUD/USD remains constrained by broad US Dollar weakness. The Greenback faces pressure from falling US Treasury bond yields and recent remarks by Federal Reserve (Fed) officials indicating that there is no urgency to increase interest rates at the 27-28 October meeting.

Friday's preliminary Purchasing Managers Index (PMI) readings for Australia and the United States are the next focus for investors. The data could shed further light on economic activity in the two countries. The forthcoming Fed and RBA monetary policy decisions are also drawing attention.

AUD/USD technical analysis: Can moving-average support hold?

The one-hour chart shows AUD/USD at 0.7016, above both the 100-period simple moving average (SMA) at 0.6996 and the 200-period SMA at 0.6978. This positioning points to modest underlying support. However, the neutral Relative Strength Index (RSI), sitting just below 50, suggests that near-term trading is more likely to remain consolidative than develop a clear direction.

A move higher would first encounter resistance at 0.7020, followed by the more substantial horizontal barrier near 0.7037. Below the current price, the 100-period SMA around 0.6996 offers immediate support, with the horizontal floor at 0.6994 providing nearby reinforcement. A sharper retreat would bring the 200-period SMA at 0.6978 into focus as the next important demand zone.

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