Australian Dollar softens below 0.7050 on risk-off mood, China's Manufacturing PMI data looms

The Australian Dollar (AUD) slipped below 0.7050 during the initial trading session on Monday, as risk-averse sentiment spread across markets. This decline occurred amid mounting geopolitical tensions in the Middle East and the impending release of China's Manufacturing Purchasing Managers' Index (PMI) data. Investors are keeping a close eye on the Reserve Bank of Australia's (RBA) interest rate decision scheduled for the following Tuesday.

Recently, Iran's Supreme Leader issued a directive for military commanders to prepare for potential confrontations with the U.S. and Israel, potentially further fueling the risk-off environment. The U.S. Federal Reserve maintained its benchmark interest rate within the 3.75%-4.00% range, signaling a cautious approach as incoming data is awaited.

Currently, there is a 72.9% probability of a rate hike in December, according to the CME FedWatch tool. However, expectations of an imminent rate increase might help curb the AUD's decline. The RBA is expected to raise its Official Cash Rate by 25 basis points to 4.85% during its November meeting, aiming to curb Australia's high inflation rates.

Market expectations have risen to nearly 78% for an interest rate increase at the upcoming RBA meeting, up from 62% previously. TD Securities notes that the market now assigns an 80% chance of a November RBA rate hike. Analysts suggest that with the market already pricing in another rate hike soon, the RBA decision may not provide significant further support for the AUD.

The U.S. Federal Reserve's hawkish stance, as highlighted in a recent speech, underscores a strong commitment to tightening monetary policy to combat persistent inflation. The Fed's speechtracker score of 8/10 signals a firm tightening bias, while the FXS Fed Sentiment Index reached 143.62, reflecting a clearly hawkish policy tone.

AUD/USD is currently trading near the 100-day simple moving average (SMA) but remains above the Bollinger middle band, indicating a neutral-to-bearish near-term outlook. The RSI is around 52, showing modest positive momentum that limits downside risk. The nearest resistance level is the 100-day SMA at 0.7030, with the next hurdle at the upper Bollinger band around 0.7065.

On the downside, support can be found at the Bollinger middle band at 0.6995, with a deeper cushion at 0.6925, potentially opening the door for a more pronounced bearish trend.