AUD/USD rebounds though Israel-Palestinian tensions remain intact

• AUD/USD prints a fresh intraday high at 0.6380 as the risk appetite of the market mood improves.
• The broader risk profile is still cautious due to deepening Middle East tensions.
• The USD index finds selling pressure near 106.60 as the focus shifts to US inflation data.

The AUD/USD pair refreshes intraday high at 0.6380 as investors pare shorts in risk-perceived assets executed due to the Middle East crisis amid bellicose between Israel and Palestinian military group. The recovery move in the Aussie asset could be a short-lived pullback as the market sentiment is still downbeat.

S&P500 futures recovered the majority of losses generated in the European session, portraying a recovery in the risk-appetite of the market participants. The 10-year US Treasury yields dropped sharply to near 4.70%. The US markets are closed on Monday on account of Columbus Day.

The US Dollar Index (DXY) faces selling pressure after a pullback move to near 106.60 as Dallas Federal Reserve (Fed) Bank President Lorie Logan draws less emphasis on raising interest rates further If long-term interest rates remain elevated because of higher term premiums. About the inflation outlook, Fed Logan cited "Progress on inflation is encouraging but it's too early to be confident it is headed to the Fed's 2% target in a sustainable, timely way."

Meanwhile, investors shift focus to the US Consumer Price Index (CPI) data for September, which will be published on Thursday at 12:30 GMT. As per the consensus, the core CPI that does not include volatile food and oil prices is seen expanding at a steady pace of 0.3%. Hotter-than-anticipated inflation report could elevate hopes of one more interest rate increase from the Fed.

On the Australian Dollar front, investors see one more interest rate increase from the Reserve Bank of Australia as inflation rebounded in August due to rising oil prices. Deepening tensions between Israel and Hamas have improved the oil price outlook, which could lift inflationary pressures in the Australian economy further. The RBA could lift interest rates by 25 basis points (bps) to 4.35% by the year-end.