Australian Dollar gains ground amid risk-on mood, tepid US Dollar

• The Australian Dollar appreciates possibly due to improved risk sentiment amid de-escalated tensions in the Middle East.
• The Australian currency could face challenges on the market sentiment of RBA cutting policy rates before the year's end.
• The US Dollar may rebound as comments from Federal Reserve officials suggest a hawkish stance on monetary policy tightening.

The Australian Dollar (AUD) breaks its two-day losing streak on Monday amid risk-on sentiment, supported by indications of de-escalating geopolitical tensions. An Iranian official's statement suggesting no immediate plans for retaliation against Israeli airstrikes contributes to the improved sentiment.

The Australian Dollar may encounter challenges ahead, particularly as domestic inflation continues to moderate, aligning with the Reserve Bank of Australia's (RBA) latest forecasts. Furthermore, the persistently tight labor market could lead to calls for an RBA rate reduction before the year's end.

The US Dollar Index (DXY), which gauges the US Dollar (USD) against six major currencies, faces pressure despite the increase in US Treasury yields. However, the potential downside for the USD pair could be restrained by comments from Federal Reserve (Fed) officials suggesting a move toward a more hawkish stance.

Daily Digest Market Movers: Australian Dollar appreciates on improved risk sentiment

• The People's Bank of China maintained its Loan Prime Rates (LPR) at 3.45% on Monday. The LPR serves as a crucial benchmark rate for Chinese banks when determining the interest rates for loans offered to their clients. Given the significant economic ties between China and Australia, any changes in Chinese monetary policy have the potential to impact the Australian market.
• The Chinese Ministry of Commerce has announced a new tariff on US goods. Specifically, China has imposed a duty of 43.5% on imports of propionic acid from the United States. This chemical is extensively utilized in various sectors, including food, feed, pesticides, and medical applications, as per Reuters report.
• The Australian Dollar gains ground with no significant geopolitical developments over the weekend. As per “The Guardian” report, Antony Blinken, the US Secretary of State, urged for calm after an Iranian official stated that there is no immediate plan for retaliation to the reported Israeli missile strike. Blinken made these remarks while addressing the press on Friday after the G7 meeting of foreign ministers in Capri, Italy.
• Chicago Fed President Austan Goolsbee remarked on Friday that progress on inflation had "stalled," and the Federal Reserve's current restrictive monetary policy is appropriate. Meanwhile, Atlanta Fed President Raphael Bostic stated that the US central bank would refrain from cutting interest rates until the end of the year.
• Traders are expected to closely monitor upcoming Purchasing Managers Index (PMI) data from both countries on Tuesday, followed by the Australian Consumer Price Index (CPI) data on Wednesday and the US Gross Domestic Product Annualized on Thursday.

Technical Analysis: Australian Dollar remains below the major barrier of 0.6450

The Australian Dollar trades around 0.6440 on Monday. The AUD/USD pair remains below the major support region around 0.6456, along with the 14-day Relative Strength Index (RSI) remaining below the 50 level, suggesting a bearish sentiment. Notable support is identified at the psychological level of 0.6400. A break below the latter could put pressure on the AUD/USD pair to revisit the previous week’s low of 0.6362, followed by the major level of 0.6350.

On the upside, immediate resistance for the AUD/USD pair is anticipated at the major level of 0.6450, followed by the 14-day Exponential Moving Average (EMA) at 0.6476. A break above this level could lead the pair to reach the psychological level of 0.6500

AUD/USD: Daily Chart