Aussie Inches Up, But Faces Technical, Policy Headwinds

Key Moments

Market Overview

The AUD/USD pair is posting modest gains in the Asian session on Friday, extending a rebound from the lower end of its weekly trading band in response to a weaker US Dollar. The move lacks strong momentum, with the pair trading only slightly above the mid-0.6900s and up just over 0.10% on the day.

The Greenback remains on the back foot as US bond yields pull back, allowing the Australian Dollar to recover from the 0.6900 area, which marked its lowest level since early July last week. Even so, spot prices are struggling to attract aggressive buying interest.

Macro Drivers: Geopolitics, Yields, and Central Banks

US Dollar softness is being driven in part by lower Treasury yields following solid demand at a 30-year bond auction. The resulting yield retracement has pushed the USD below an 18-month high, creating a more supportive backdrop for AUD/USD.

Comments from President Donald Trump on Thursday that the US will not resume military strikes on Iran before the November 3 midterm congressional election have also helped to keep crude oil prices contained. This has eased worries about runaway inflation and contributed to the downward pressure on the USD.

However, geopolitical tensions remain a significant theme. State media, citing Iran’s head of the Atomic Energy Organization, Mohammad Eslami, reported that the country will not halt uranium enrichment or relinquish its uranium stockpile. In addition, intensifying fighting between Iran-backed Houthis in Iran and Saudi Arabia is seen as a potential source of support for the safe-haven Greenback, tempering the impact of lower yields and softer oil.

On the policy front, the US Federal Reserve’s hawkish stance continues to provide a floor for the USD and may restrict a deeper pullback. In contrast, fading expectations for another interest rate increase from the Reserve Bank of Australia are acting as a headwind for the Aussie, limiting the scope for a sustained AUD/USD rally.

Against this backdrop, market participants are cautious about chasing the latest uptick, with many waiting for stronger follow-through buying before positioning for a more durable recovery from the 0.6900 region.

UOB View: Consolidation Rather Than Extended Decline

Analysts at UOB Group highlight that their earlier projection for AUD/USD to “edge higher within a 0.6965/0.6995 range” was invalidated when the pair fell to a low of 0.6943. Nonetheless, they point out that “despite the relatively rapid decline, there has been no clear increase in downward momentum, and a sustained decline in AUD is unlikely.”

UOB now anticipates that, in the near term, the Australian Dollar will “trade in a range between 0.6935 and 0.6975,” implying a phase of consolidation rather than a continuation of recent losses.

Key AUD/USD Technical Levels

From a technical standpoint, AUD/USD retains a bearish short-term bias on the 4-hour chart, trading beneath the 100-period Simple Moving Average and facing a concentrated area of Fibonacci resistance overhead.

Initial resistance is located at the 23.6% Fibonacci retracement at 0.6983. The 38.2% retracement at 0.7032 provides an additional barrier and underpins the view that upside may be limited while the broader decline from the 0.7237 swing high remains intact. On the downside, first notable support is seen at the cycle low of 0.6905, where buyers may look to slow any renewed selling pressure.