Dollar weakness lifts AUD/USD back over 0.7000, but technical barriers still block gains

Just as the Australian dollar appeared set to give up ground this week, the US dollar stepped in with support. The timing was fortunate.

AUD/USD has pushed back above 0.7000 and was last near 0.7010 as the dollar faced selling pressure after the US midterm elections. The bounce is helping reverse the attempted break below that round number that followed yesterday's RBA decision. Still, it is too early to get carried away.

On the hourly timeframe, the latest advance is meeting resistance near 0.7020, where the 200-hour moving average sits. Buyers must clear that first hurdle before a stronger recovery can be attempted.

Even beyond that, the daily timeframe does not make things easy.

The 100-day and 200-day moving averages, located between 0.7030 and 0.7056, continue to cap additional upside momentum. Until buyers clear those levels, the wider technical backdrop looks unconvincing, in my view.

The RBA is not providing much support either. It lifted the cash rate to 4.85%, the highest in 18 years, but the 6-3 split vote and Bullock's suggestion that policymakers should take stock of earlier tightening have reduced expectations for more hikes.

That leaves the dollar side of the equation to do most of the work. Against that backdrop, the central question is what shifts after the US midterms?

Start with what a Democratic sweep could mean for markets. Such an outcome would essentially disrupt Trump's policy agenda, and investors are now assessing the chances of more political gridlock plus stricter scrutiny of AI investment and data centre expansion. In my view, however, the larger wildcard is the US-Iran war.

The question is whether Trump treats the election setback as grounds to seek a diplomatic resolution, or whether he escalates military action.

If Trump chooses the latter, renewed escalation and heightened geopolitical tensions would return. That would bring higher oil prices, which would in turn revive inflation concerns. It could also keep Treasury yields elevated and prompt another flight to safety. Under that scenario, the dollar might find fresh support while the aussie suffers another risk-off selloff.

If Trump instead steps back, oil prices could fall further, helping to ease inflation pressures and lift broader risk sentiment. That combination would be welcome for the aussie, particularly if weaker inflation expectations also pull Treasury yields and the dollar lower.

With the US and Iran still far apart on key demands, though, neither outcome should be assumed.

For now, I view today's AUD/USD move as a rebound driven by the dollar rather than a convincing comeback by the aussie. The bottom line is that until the moving averages give way on both the near-term and daily timeframes, buyers still have much to prove before a renewed leg higher in the pair can be considered convincing.