AUD/USD Weakens Amid Geopolitical Turmoil and Risk-Off Market Mood

The Australian Dollar (AUD) slipped further against the US Dollar (USD) on Monday, marking its third consecutive daily decline as geopolitical tensions in the Middle East fuel investor risk aversion. The AUD/USD pair is currently trading near 0.6430, reflecting a cautious sentiment ahead of key US PMI data scheduled for release later today.

AUD/USD Technical Outlook: Bearish Momentum Builds

On the technical front, AUD/USD has broken below an ascending channel pattern, reinforcing a short-term bearish bias. The 14-day Relative Strength Index (RSI) dipped below the neutral 50 level, confirming weakening momentum. Additionally, the pair is trading below its 9-day Exponential Moving Average (EMA), signaling continued downside pressure.

Key support is seen near the psychological level of 0.6400, often viewed as a “throwback support” zone. A decisive break below this level may open the door to deeper losses, potentially targeting 0.5914, the lowest level seen since March 2020.

On the upside, resistance lies at the 50-day EMA around 0.6432, followed by the lower boundary of the previously broken ascending channel near 0.6450. A sustained recovery above 0.6474 (9-day EMA) could shift sentiment back in favor of the bulls, with potential to retest the June 16 high of 0.6552.

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Fundamental Drivers: Tensions in Middle East and Fed Comments in Focus

Investor anxiety spiked after US President Donald Trump announced airstrikes on Iran’s three nuclear facilities, including key sites in Fordow, Natanz, and Isfahan. The attacks, carried out in coordination with Israel, marked a significant escalation in the region. Iran’s parliament responded by approving a measure to potentially close the Strait of Hormuz, a vital channel for global oil trade.

Despite the geopolitical shock, the US Dollar Index (DXY) is showing signs of weakness, currently hovering near 99.60. Dovish rhetoric from Federal Reserve Governor Christopher Waller contributed to the USD’s decline. He signaled the possibility of rate cuts starting as early as July, citing growing global uncertainty.

Although the Federal Open Market Committee (FOMC) kept rates unchanged at 4.5% in June, it still forecasts a cumulative 50 basis points of cuts by end-2025. However, Fed Chair Jerome Powell emphasized that actual rate reductions will depend on continued progress in inflation and employment data.

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Australia and China Data Fails to Lift AUD

Australia’s latest PMI data from S&P Global offered a mild improvement but failed to sway market sentiment. The Manufacturing PMI held steady at 51.0, while Services PMI rose to 51.3 from 50.6. The Composite PMI increased slightly to 51.2.

On the labor front, the Australian Bureau of Statistics reported a surprise decline of 2.5K jobs in May, falling short of expectations for a 25K gain and sharply below April’s upwardly revised 87.6K increase. The unemployment rate, however, remained stable at 4.1%, aligning with forecasts.

Meanwhile, in China—Australia’s top trading partner—economic data sent mixed signals. Retail Sales in May surged 6.4% YoY, beating expectations, but Industrial Production missed estimates, rising only 5.8%. The People’s Bank of China (PBOC) kept its Loan Prime Rates unchanged at 3.00% (1Y) and 3.50% (5Y).

While the National Bureau of Statistics (NBS) stated that China’s economy remained stable in the first half of 2025, concerns linger over slowing momentum in Q2 amid uncertain trade dynamics.

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Summary

The Australian Dollar continues to face headwinds from geopolitical instability, weaker domestic data, and cautious global sentiment. With risk appetite subdued and the USD under pressure from dovish Fed signals, the AUD/USD pair remains vulnerable in the near term, especially if upcoming US PMI data surprises to the upside.

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