The Australian dollar has returned to the 0.65 range against the U.S. dollar amid easing geopolitical tensions and renewed interest in risk assets. The declared ceasefire in the Middle East is "hanging by a thread," but judging by the upward trend in AUD/USD, the market appears confident that the parties will adhere to the agreed terms. Reacting to the improved fundamental backdrop, the Aussie is now targeting the next resistance level at 0.6550, which coincides with the upper line of the Bollinger Bands indicator on the daily chart. The "dark streak" for the Australian dollar seems to be behind us, although many fundamental factors are still working against the Aussie.

It's worth recalling that last week brought mixed Australian labor market data. Unemployment remained unchanged at 4.1%, while the number of employed unexpectedly dropped by 2,500 (compared to analysts' forecast of a 20,000 increase). However, the decline was due to a reduction in part-time employment, while full-time employment increased by nearly 40,000.

These "Australian Nonfarm Payrolls" should be viewed in the context of another release, which showed that the country's economy grew by only 0.2% quarter-on-quarter and 1.3% year-on-year in Q1. The GDP report also reflected a decline in consumer activity: the household savings ratio to income rose to 5.2% in Q1.

The report scheduled for release on Wednesday may clarify the fundamental picture, depending on whether it matches forecasts or falls into the "red zone." On June 25, we'll get the May reading of Australia's Consumer Price Index. For three consecutive months (February through April), the CPI held steady at 2.4%. According to preliminary forecasts, it is expected to slow slightly to 2.3% in May.

It's important to note that following its May meeting, the Reserve Bank of Australia cut the interest rate by 25 basis points and hinted at further easing—"if inflation continues to decline and the labor market continues to cool." Although the RBA primarily focuses on quarterly data, a monthly slowdown in inflation could influence its tone at the next meeting scheduled for July 8. CPI data for Q2 will only be published in the second half of next month.

Most analysts believe the RBA will leave monetary policy unchanged following its July meeting. However, if the CPI report is weak, the central bank could give a clear hint—or even explicitly announce—another round of easing at its August meeting. On the other hand, if the monthly CPI holds steady or (especially) accelerates, the Aussie will receive strong support, as expectations for an August rate cut would once again become uncertain. Notably, consumer inflation expectations published earlier this month (June 12) surged to 5.0% from 4.1%. If the May CPI unexpectedly accelerates, rumors may resurface that the RBA could pause its easing cycle—at least for the next two meetings.

Even if the inflation report pressures the Australian dollar, any AUD/USD pullbacks would be reasonable opportunities for long positions—but only if Iran and Israel adhere to the ceasefire (i.e. if demand for risk assets continues in the FX market). It's important to remember that Middle East developments drove the AUD/USD's recent rally. The de-escalation of the conflict favors the Aussie, so as long as war doesn't resume, the Australian dollar will remain in demand—even if Australia's monthly CPI slows. At the moment, all signs suggest that both sides are committed to the ceasefire. According to Iranian President Pezeshkian, Tehran will honor the ceasefire as long as Israel does not violate it. Israeli officials have made similar "mirror-like" statements. If this situation remains unchanged, demand for the Australian dollar will hold, and long positions on AUD/USD will remain a priority.

Technical Perspective

On the daily chart, the pair has broken through the resistance level at 0.6490 (the middle line of the Bollinger Bands) and now sits between the middle and upper lines of the Bollinger Bands and above all lines of the Ichimoku indicator (including the Kumo cloud). The first and currently primary bullish target is 0.6550 (the upper line of the Bollinger Bands on the same timeframe).