Australian Dollar posts modest gains above 0.7150 on US Treasury buyback worries

The Australian Dollar (AUD) experienced slight gains compared to the US Dollar (USD) on Monday, with the pair trading near 0.7175. This movement came amid worries that the US Treasury may expand its purchases of longer-term government debt. The Reserve Bank of Australia (RBA) is set to release meeting minutes on Tuesday. US Treasury Secretary Scott Bessent indicated on Thursday that the Treasury might increase bond buybacks beyond $4 billion, partly to demonstrate that present yields are not reflective of the underlying economic fundamentals.

This move occurred after the agency surprised markets by committing to at least double the size of its buybacks of longer-dated debt, aiming to curb bond yields. Marc Chandler, chief market strategist at Bannockburn Global Forex, noted that Bessent's efforts to curb U.S. yields have not had much effect on U.S. yields but have weakened the dollar.

However, rising tensions in the Middle East could bolster safe-haven demand, potentially limiting the dollar's losses. Iran's Foreign Minister Abbas Araghchi dismissed the prospect of new U.S. sanctions as a sign of desperation and claimed they would fail to topple Tehran. Iran’s Security Chief Mohsen Rezaei threatened "earthquake-like" retaliation if U.S. President Donald Trump takes further action.

The release of Australia's latest labor market report on Tuesday revealed a negative surprise, with the economy shedding 15.8k jobs in July, falling short of the 12k jobs increase expected by analysts. This unexpected surge in unemployment will likely influence market reactions to future Australia data, including the July Consumer Price Index (CPI) release and its implications for RBA expectations.

In the daily chart, AUD/USD has broken above the 20-period Bollinger middle band and the 100-day moving average, signaling a bullish near-term bias. The price is nearing the upper Bollinger band, suggesting a stretched move, while the Relative Strength Index (14) is hovering around 70.0, indicating overbought conditions that could impede further gains even as the overall sentiment remains positive.

Immediate support lies at the 100-day MA near 0.7072, backed by the 20-period Bollinger middle band, which is close to 0.7065, with a more substantial support level at the lower Bollinger band around 0.6955. On the upside, the primary resistance is the upper Bollinger band at 0.7175, and a sustained break above this level may pave the way for additional gains, while failing to clear it could trigger a corrective pullback towards the identified support zone.