Australian Dollar caught between hawkish RBA, Iran-related inflation risks

The Australian Dollar (AUD) found itself navigating a precarious balance between hawkish rhetoric from the Reserve Bank of Australia (RBA) and mounting concerns over inflation risks stemming from Iran-related factors. On Thursday, the AUD/USD pair traded near 0.7055, hovering around the 0.7090 level reached on Wednesday, teetering between the support of the RBA's cautious stance on inflation and the resilience of the US Dollar (USD) amidst ongoing tensions between the US and Iran.

The RBA, at its meeting on Tuesday, maintained its key interest rate at 4.35% and expressed a hawkish outlook, signaling readiness to raise rates should inflation pressures not subside adequately. RBA Governor Michele Bullock hinted at the possibility of an interest rate hike during the September 29 meeting, though the market currently views this as a 21% likelihood, compared to a 79% chance of a rate hold.

In the US, the latest Consumer Price Index (CPI) report dampened expectations of an imminent Fed rate hike, with annual inflation settling at 3.4% in July, slightly lower than the previous 3.5%. Core inflation also showed a modest decline to 2.5%. These figures were in line with expectations, leading to a reduced probability of a Fed interest rate increase in September, now standing at around 60% according to the CME FedWatch Tool.

Despite the easing of Fed tightening expectations, which theoretically might have bolstered the US Dollar, geopolitical tensions between Washington and Tehran remained a significant factor. The uncertainty over control of the Strait of Hormuz, claimed by both the US and Iran, added an element of risk that supported demand for safe-haven assets like the US Dollar, thereby hampering the AUD/USD's recovery.

Analysts are now keeping a close eye on the US Producer Price Index (PPI), Weekly Initial Jobless Claims, and statements from key Fed officials, as these could offer further insights into the Fed's outlook and potentially help AUD/USD break out of its current consolidation phase. The one-hour chart indicated a mildly bearish near-term bias for AUD/USD, with the pair trading below the 100-period simple moving average (SMA) at 0.7057 and above the 200-period SMA at 0.7045, suggesting a period of consolidation rather than a definitive downtrend.

The Relative Strength Index (RSI) was around 45, indicating a lack of strong bullish momentum after the recent pullback.

On the upside, the primary resistance level was identified at the 100-period SMA at 0.7057, with 0.7064 acting as the next significant barrier if a rebound were to occur. Conversely, on the downside, immediate support was located at the 200-period SMA near 0.7045, followed by a horizontal support level at 0.7040. A stronger downward movement could expose deeper support around 0.7020.