Australian Dollar remains stronger following PBoC's interest rate decision

• The Australian Dollar holds ground as the People's Bank of China announced to leave the Loan Prime Rates unchanged.
• The PBoC kept the one-year and five-year LPRs at 3.00% and 3.50%, respectively, on Friday.
• The US Dollar may regain its ground due to the potential threat of US direct involvement in the Middle East conflicts.

The Australian Dollar (AUD) retraces its recent losses on Friday. The AUD/USD pair remains stronger following the release of the interest rate decision from China. However, the upside of the pair could be limited due to dampened risk sentiment amid escalating Middle East tensions.

The People's Bank of China (PBOC) decided to leave its Loan Prime Rates (LPRs) unchanged on Friday. The one-year and five-year LPRs were at 3.00% and 3.50%, respectively.

US intelligence agencies believe that Iran has yet to decide whether to make a nuclear weapon, even though it has developed a large stockpile of the enriched uranium necessary to make a bomb. However, Iran was likely to shift toward producing a bomb if the US military attacked Iran's uranium enrichment site Fordo, or if Israel killed Iran's supreme leader, senior US intelligence sources added, The New York Times.

The US Dollar (USD) received support from heightened safe-haven demand amid rising concerns over potential US involvement in the Israel-Iran air war. The Israel-Iran conflict has entered its seventh day as the two countries continue further air attacks on Thursday. White House spokeswoman Karoline Leavitt noted that US President Donald Trump will decide within two weeks whether to strike Iran.

Australian Bureau of Statistics reported on Thursday that Employment Change fell by 2.5K in May against a 87.6K increase in April (revised from 89K) and the consensus forecast of a 25K rise. Furthermore, the Unemployment Rate steadied at 4.1% in May, as expected.

Australian Dollar appreciates as US Dollar extends losses on technical pullback

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is trading lower at around 98.60 at the time of writing. Traders will likely gauge the Fed's Monetary Policy Report, scheduled for release on Friday.
• The US Federal Reserve (Fed) decided to keep the interest rate steady at 4.5% in June as widely expected. The Federal Open Market Committee (FOMC) still sees around 50 basis points of interest rate cuts through the end of 2025.
• Fed Chair Jerome Powell warned that ongoing policy uncertainty will keep the Fed in a rate-hold stance, and any rate cuts will be contingent on further improvement in labor and inflation data.
• Bloomberg cited unnamed sources on Thursday, reporting that "US officials prepare for possible strike on Iran in coming days." "The US plans for any attack on Iran continue to evolve." Moreover, the Wall Street Journal cited individuals familiar with discussions, saying that US President Trump said late Tuesday that he approved of attack plans for Iran, but held it to see if Tehran would abandon its nuclear program.
• On Tuesday, US President Donald Trump posted on his social media platform, calling for Iran's "unconditional surrender." Investors are concerned that the United States will participate in the Israel-Iran conflict.
• G7 leaders issued a joint statement on Monday: "We have been consistently clear that Iran can never have a nuclear weapon." The leaders emphasized that resolving the Iranian crisis could lead to broader de-escalation of hostilities in the region.
• China Retail Sales rose 6.4% year-over-year in May, surpassing the 5.0% expected and April's 5.1% increase. Meanwhile, Industrial Production increased 5.8% YoY, but came in below the 5.9% forecast and 6.1% prior.
• Moreover, the National Bureau of Statistics (NBS) in China noted that the domestic economy is expected to have remained generally stable for the first half (H1) of 2025. However, economic growth in China may struggle since the second quarter due to uncertain trade policies.

Australian Dollar tests nine-day EMA barrier near 0.6500

The AUD/USD pair is trading around 0.6480 on Friday. The technical analysis of the daily chart indicates the revival of the bullish bias as the pair attempts to rebound toward the ascending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) is positioned slightly above the 50 mark, suggesting the strengthening of a bullish bias. However, the pair is positioned below the nine-day Exponential Moving Average (EMA), indicating that short-term price momentum is still weaker.

A successful return to the channel would strengthen the bullish bias and support the pair to test the barrier at the nine-day EMA of 0.6492, followed by the seven-month high of 0.6552, which was recorded on June 16. A break above this crucial resistance zone may reinforce the bullish bias and lead the pair to target the eight-month high at 0.6687, followed by the upper boundary of the ascending channel around 0.6760.

On the downside, the AUD/USD pair may target the 50-day EMA at 0.6436. A break below this level would weaken the medium-term price momentum and put downward pressure on the pair to navigate the region around the 0.5914, the lowest level since March 2020.

AUD/USD: Daily Chart