Australian Dollar climbs above 0.7000 as hopes of an Iran deal lift risk sentiment

The Australian Dollar (AUD) surged above 0.7000 on Tuesday, driven by optimism surrounding a potential Iran deal and improved market risk sentiment. US Treasury Secretary Scott Bessent hinted at a possible agreement with Iran to reopen the Strait of Hormuz, which could occur as early as Tuesday or Wednesday. This development sent Oil prices plummeting, as investors anticipated a gradual normalization of global energy supplies.

The boost in risk sentiment positively impacted the AUD, a currency that historically benefits from heightened investor confidence. While Iranian officials previously dismissed direct negotiations with Washington, the prospect of de-escalating tensions in the Middle East has caught the attention of investors. Domestic data also bolstered the AUD's strength.

ANZ-Indeed Job Ads increased by 2% in July, following a 0.2% decline in the previous month, indicating persistent labor demand despite a weakening economy. Conversely, the TD-MI Inflation Gauge rebounded by 1% month-over-month, marking its first rise since April and signaling a potential resurgence in inflationary pressures. Reserve Bank of Australia (RBA) Governor Michele Bullock emphasized that underlying inflation remains elevated and cautioned that price pressures might intensify due to prior energy market disruptions.

Her remarks reinforced the expectation of a tighter monetary policy, with markets already factoring in one additional rate hike in 2025. Meanwhile, in the United States, investors are eagerly awaiting the July employment report, scheduled for release on Friday. Robust job figures could reinforce the Federal Reserve's (Fed) view that interest rates should remain elevated for a longer period, diminishing downside pressure on the US Dollar (USD).

Conversely, recent declines in energy prices have tempered expectations of further monetary tightening, as markets reassess the trajectory of US monetary policy. According to the CME FedWatch Tool, the probability of a September rate hike has declined to 56.9% from 67.2% a day earlier. On the technical chart, AUD/USD is trading at 0.7038, maintaining a bullish outlook as it stays above the 100-period simple moving average (SMA) at 0.7003 and the 200-period SMA at 0.6992.

The currency pair also remains above the upward-sloping trend-line support near 0.7008 and the horizontal support at 0.7020. The Relative Strength Index (RSI) near 70 suggests strong but waning upside momentum. Should the AUD/USD falter, initial support is expected around the horizontal level at 0.7020, followed by the trend-line area near 0.7008 and the 100-period SMA at 0.7003, with deeper protection provided by the 200-period SMA at 0.6992.

On the upside, immediate resistance is positioned at 0.7050, where a decisive break higher could propel the pair further in its current advance. (The technical analysis component of this report was generated with the assistance of an AI tool. For further details, please refer to the accompanying notes.) Ghiles Guezout is a seasoned Market Analyst with extensive experience in stock market investments, trading, and cryptocurrencies.

He leverages both fundamental and technical analysis methodologies to pinpoint potential market opportunities. GBP/USD faced bearish pressure and slipped towards 1.3500 on Tuesday. The UK ILO Unemployment Rate remained unchanged at 4.9% for the three months ending June, aligning with forecasts of 4.8%, while Employment Change came in at 83K, a contrast to the previous 147K.

Weak UK labor data, coupled with the risk-averse market environment following the resurgence of tensions in the Middle East, weighed on the pair. EUR/USD struggled to gain momentum and traded beneath 1.1600 during the latter part of Tuesday, even after Eurozone and German data revealed improved economic sentiment in August. The US Dollar (USD) gained strength from the risk-averse market sentiment, as ongoing Middle East tensions made it challenging for the pair to rally.

Gold dipped below the $4,400 level throughout the initial half of the European session, ending a two-day winning streak amidst a generally firmer US Dollar. Inflation concerns stemming from higher oil prices bolstered the case for at least one interest rate hike by the US Federal Reserve in 2026. Cryptocurrency prices experienced a broad correction on Tuesday, with Bitcoin edging closer to $64,000.

Ethereum exhibited weakness amidst narrow-range consolidation, while Ripple traded under $1.00, pressured by falling technical indicators. US Treasury yields continued to climb across the curve, reaching a record high of 5.33% for the 30-year Treasury bond on Monday. A combination of apprehensions about the expanding US fiscal deficit and doubts regarding the Federal Reserve's independence is mounting pressure on US Government Bonds.