Risk Off Pressure
In Australia, Prime Minister Anthony Albanese said fuel excise on petrol and diesel will be cut to 50% for three months. The measure aims to ease household costs as energy prices rise amid Middle East supply disruption. The US Dollar was little changed, with the DXY holding above 100.00. Market pricing shifted away from two 2026 rate cuts, and put the chance of at least one Fed hike this year at 24.6%, based on CME FedWatch. Technically, AUD/USD is below the 20-day EMA near 0.6995, with resistance at 0.6920 and 0.6995. Support sits around 0.6750, then 0.6660, while the 14-day RSI moved into the 20.00–40.00 range. Looking back at the analysis from 2025, we can see that the bearish breakdown below 0.6900 was a significant turning point. That risk-off mood has persisted, and the fundamental reasons for Aussie weakness have only deepened over the past year. Today, with the pair struggling to hold above 0.6600, that old analysis remains highly relevant.Central Bank Policy Divergence
The key difference now is the clear policy divergence between the central banks, which wasn’t as pronounced last year. The Reserve Bank of Australia is now hinting at rate cuts after the latest quarterly inflation data came in at 2.8%, just inside their target band. This contrasts sharply with the firm stance from the US Federal Reserve. In the United States, recent Non-Farm Payrolls data showed a robust addition of over 250,000 jobs, and core inflation remains sticky above 3.1%. This strength gives the Fed no reason to ease policy, keeping the US dollar supported on interest rate differentials alone. The market has now fully priced out any Fed cuts for the first half of 2026. Furthermore, the risk sentiment that hurt the Aussie last year has shifted from Middle East conflict fears to concerns over slowing growth in China. Iron ore, Australia’s key export, has fallen over 15% in this first quarter of 2026, trading near $105 a tonne. This directly weighs on the Australian dollar’s value. For derivative traders, this environment favors strategies that profit from a further decline or sideways consolidation at these lower levels. Buying put options with strike prices around 0.6500 or 0.6450 offers a clear directional bet on the continuation of this trend. Alternatively, selling out-of-the-money call options or establishing bear call spreads can generate income by betting the pair will not rally significantly above current resistance. Given the steady downtrend, implied volatility in AUD/USD options may be relatively low compared to historical peaks. This can make purchasing puts more affordable, providing a cost-effective way to position for another leg down toward the multi-year lows seen in late 2023. We should monitor central bank statements closely, as any unexpected shift could quickly alter this outlook. Create your live VT Markets account and start trading now.
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