• AUD/USD catches fresh bids following a modest gap down opening at the start of a new week.
• A positive risk tone undermines the USD and supports the Aussie amid the RBA’s hawkish tilt.
• Escalating US-Iran tensions, inflation fears, and Fed hike bets limit USD losses and cap the pair.

The AUD/USD pair hits a fresh daily high during the early part of the European session on Monday, with bulls now looking to build on the intraday move up beyond the 0.7000 psychological mark amid a weaker US Dollar (USD).

Despite a further escalation of tensions between the US and Iran, a slight improvement in the global risk sentiment – as depicted by a generally positive tone around European equity markets – prompts some intraday selling around the safe-haven buck. This, in turn, assists the AUD/USD pair to attract some dip-buyers following a modest bearish gap opening at the start of a new week.

Any meaningful USD depreciation, however, seems elusive amid persistent geopolitical uncertainties and reviving hawkish US Federal Reserve (Fed) expectations. In fact, the US completed a ninth straight night of strikes against Iran, while the latter fired ballistic missiles and one-way attack drones targeting US allies in the region. This raises the risk of a broader regional conflict.

Furthermore, renewed US-Iran hostilities, along with the closure of the Strait of Hormuz, remain supportive of elevated crude oil prices. This, in turn, revives inflationary concerns and reaffirms market bets that the US central bank will raise borrowing costs by the end of this year. The outlook acts as a tailwind for US Treasury bond yields and should help limit further USD losses.

The Australian Dollar (AUD), on the other hand, draws support from the Reserve Bank of Australia's (RBA) relatively hawkish stance and steady economic data from China. The AUD/USD bulls, however, might refrain from placing aggressive bets and opt to wait for further developments surrounding the Middle East crisis amid the absence of relevant US economic data on Monday.