AUD/USD Daily Forecast AUD/USD Holds Recovery Momentum as Traders Rebuild Risk Exposure Ahead of Key Central Bank Decisions The Australian Dollar started the week on a positive note, outperforming most major currencies as improving global risk sentiment encouraged investors to rotate away from defensive positions and back toward growth-sensitive assets. AUD/USD climbed to its highest level in more than a week before easing slightly, with the pair remaining comfortably above the 0.7070 mark as traders prepared for a pivotal week dominated by central bank decisions in Australia and the United States. The primary catalyst behind the Australian Dollar's strength was the announcement of a framework agreement between the United States and Iran. The prospect of an end to months of geopolitical tensions immediately altered market psychology. Investors who had accumulated US Dollar exposure as a hedge against conflict began reducing those positions as fears surrounding energy supply disruptions eased. The reaction was particularly visible in commodity markets. Oil prices declined sharply as traders priced in the potential reopening of the Strait of Hormuz, one of the world's most important energy shipping routes. Lower oil prices helped reduce inflation concerns that had been building across global markets in recent months. That shift matters because inflation expectations remain one of the key drivers of central-bank policy, bond yields, and foreign exchange flows. For currency markets, the transmission mechanism is straightforward. Lower energy costs ease inflationary pressure, reducing the urgency for central banks to tighten policy aggressively. As a result, investors become more comfortable increasing exposure to risk-sensitive currencies such as the Australian Dollar while trimming safe-haven holdings. Capital flows over the last several sessions suggest exactly that process is underway. Defensive positioning accumulated during the height of Middle East tensions is gradually being unwound. Rather than chasing the US Dollar higher, institutional investors are reallocating capital toward currencies linked to global growth and commodity demand. The Australian Dollar, often viewed as a proxy for global risk appetite, has been a natural beneficiary of that rotation. At the same time, traders remain cautious about becoming overly aggressive. While the geopolitical backdrop has improved significantly, markets understand that the agreement still requires formal implementation and that several important details remain unresolved. This explains why the Australian Dollar has paused after its initial surge rather than extending gains aggressively. The broader focus now shifts toward monetary policy. The Reserve Bank of Australia and the Federal Reserve will both deliver interest-rate decisions this week, creating a major source of event risk for currency markets. Investors expect the RBA to leave rates unchanged after a series of tightening measures, but policymakers are unlikely to completely remove the possibility of future action if inflation remains elevated. The Federal Reserve meeting may prove even more influential. Markets widely expect rates to remain unchanged, yet attention will be focused on Chairman Kevin Warsh's communication and any clues regarding the future direction of policy. Investors are attempting to determine whether easing geopolitical risks and softer energy prices are sufficient to alter the inflation outlook. From a positioning perspective, recent AUD/USD gains appear to be driven by a combination of short-covering and selective fresh buying. Traders who had built bearish positions during the pair's decline toward recent lows have been forced to unwind exposure as sentiment improved. At the same time, new buyers are cautiously returning, anticipating that a less defensive global environment could support higher-yielding currencies over the medium term. Market psychology remains constructive but measured. Institutions appear willing to rebuild risk exposure, though few are prepared to commit aggressively ahead of two major central-bank meetings. This explains the consolidation visible near current levels. Investors are not abandoning the bullish narrative, but they are waiting for policy confirmation before extending positions significantly. From a technical perspective, the chart structure continues to improve. AUD/USD has successfully moved above the descending trendline that capped rallies throughout the first half of June, suggesting that bearish momentum has weakened considerably. The recovery has also pushed price back above key short-term support zones, improving the broader technical outlook. The pair is currently testing the 50% Fibonacci retracement of the June decline near 0.7090. This level represents the first major obstacle for buyers and explains the temporary hesitation visible on the chart. A decisive break above it would strengthen bullish momentum and expose the 61.8% Fibonacci retracement near 0.7113. Beyond that level, the key resistance zone sits around 0.7145, where previous swing highs align with the 78.6% Fibonacci retracement. This area is likely to attract increased profit-taking and institutional selling interest. On the downside, immediate support is located between the 38.2% Fibonacci retracement near 0.7060 and the former descending trendline around 0.7050. As long as price remains above this support cluster, buyers retain near-term control. A break lower would expose 0.7020 initially, followed by the recent two-month low near 0.6980. For now, AUD/USD remains supported by improving risk appetite, easing geopolitical fears, and shifting capital flows away from safe-haven assets. Whether that recovery evolves into a broader bullish trend will largely depend on how the RBA and Federal Reserve shape market expectations in the days ahead.
