Dow futures drop 500 points as oil surges and Treasury yields climb

The Australian Dollar (AUD) experienced a decline while the US Dollar (USD) surged due to a rise in Treasury yields, according to wire material. The US Dollar gained support as yields climbed towards multi-decade highs since 2002. The 10-year and 30-year Treasury notes reached 5.32% and 5.71%, respectively. A hawkish stance from the Federal Open Market Committee (FOMC) regarding persistent inflation risks also negatively impacted overall investor sentiment.

Moreover, the Federal Reserve’s September Meeting Minutes showed unanimous approval among 19 policymakers to raise interest rates, with a majority believing a further increase might be necessary before the year's end. Although traders anticipate rates remaining steady at the October meeting, there is an 84.2% probability of hikes in December, according to the CME FedWatch tool.

Safe-haven demand contributed to the Greenback's strength due to ongoing geopolitical tensions between the US and Iran, which pose a threat to maritime shipping routes through the Strait of Hormuz. Australia's Consumer Inflation Expectations reached a four-month peak of 5.3% in October. This indicates price pressures driven by high global energy costs despite the Reserve Bank of Australia's (RBA) ongoing monetary tightening.

The probability of an additional interest rate hike to 4.85% at the upcoming RBA Board meeting stands at 27%, based on the ASX Rate Tracker. UOB Group strategists revised their view on AUD from negative to neutral, predicting it to trade between 0.6935 and 0.7020. The AUD/USD pair traded at 0.6950, displaying a bearish near-term bias as it stayed below both the nine- and 50-period Exponential Moving Averages (EMAs).

The short-term EMA was under the longer one but remained above spot, suggesting a capped recovery structure after the recent slide. The 14-day Relative Strength Index (RSI) was at 34, indicating lingering bearish pressure and proximity to oversold territory. The latest FXS Fed Sentiment Index reading was 137.9, suggesting a cautious macro backdrop that may keep AUD rallies subdued.

Immediate resistance for AUD/USD is at the nine-period EMA at 0.6979, with a significant barrier at the 50-period EMA near 0.7058. On the downside, initial support is at the horizontal level of 0.6688, followed by deeper floors at 0.6434 and 0.6348, marking prior demand zones.