Australian Dollar edges higher above 0.7000 on US-Iran breakthrough hopes

The Australian Dollar (AUD) managed to surpass the 0.7000 mark against the US Dollar (USD) on Tuesday, propelled by hopes of a breakthrough in US-Iran talks aimed at resolving tensions in the Middle East. The easing of Middle East tensions contributed to a more favorable risk sentiment, providing some support to the AUD. Later this week, Australia's Trade Balance data will be released, which could further influence the currency's direction.

On Friday, traders will focus on the US employment report for July, which could offer more insights into the Federal Reserve's (Fed) next policy move. The optimism surrounding the US-Iran talks has buoyed a risk-sensitive currency like the Australian Dollar. Recent comments from US President Donald Trump regarding ongoing negotiations with Iran, described as "Tehran's last chance" to secure a deal, also played a role in lifting the AUD.

Despite a hawkish tone from the Reserve Bank of Australia (RBA), data released earlier showed somewhat cooler inflation trends. RBA Governor Michele Bullock had warned that inflation remains high, and further slowdowns in domestic demand might be necessary to address the issue. She also indicated that policymakers were ready to raise interest rates again if required.

Market participants anticipate that the RBA will likely implement one more rate hike this year, potentially raising the Official Cash Rate (OCR) to 4.60%. Analysts at Rabobank noted an increase in speculative positioning against the AUD, with AUD net shorts rising for the sixth consecutive week to the highest level since September 2025.

However, they also pointed out that the AUD has remained resilient on a spot basis, with the currency performing well YTD, up 4.9% against the USD. This strong performance can be attributed to the Reserve Bank of Australia's three interest rate hikes this year. Looking ahead, Rabobank cautioned that the rally for the AUD/USD pair might be losing momentum, forecasting sideways movement around 0.69-0.70 over the next three months.

The daily chart showed the AUD/USD pair trading above the Bollinger Bands simple moving average middle line, but capped by the 100-day simple moving average (SMA), indicating a neutral near-term bias. The Relative Strength Index (14) at 55.5 suggested modest bullish momentum, while price oscillation within the upper half of the recent Bollinger envelope indicated mixed sentiment.

The immediate resistance level was identified at the Bollinger upper band near 0.7040, followed by the 100-day SMA at 0.7052, where stronger supply could potentially emerge. Support levels were noted at the Bollinger middle band around 0.6980 and a deeper support cushion at the lower band near 0.6925 if a pullback were to extend.