AUD/USD rebounded on Monday after opening with a gap lower, as hopes of a US-Iran deal improved market mood and reduced support for the US Dollar. AUD/USD traded near 0.7089 after an intraday low around 0.6990.
The US Dollar Index (DXY) was around 98.54 after earlier trading near 99.00. US President Donald Trump said on Monday that the United States had been contacted by “the right people” in Iran, after weekend talks ended without a breakthrough and after he ordered a naval blockade targeting Iranian ports.
Middle East Risk And Oil Impact
Traders are watching Middle East developments, including any easing of tensions and possible reopening of the Strait of Hormuz. Higher Oil prices are adding to inflation concerns and affecting central bank policy expectations.
In the US, March headline CPI rose 0.9% month-on-month, up from 0.3% in February, and increased to 3.3% year-on-year from 2.4%. This has supported expectations that the Federal Reserve will keep interest rates unchanged in coming months.
In Australia, inflation remains above the RBA’s 2%–3% target range, and the RBA has raised rates twice this year. Employment data due Thursday and China’s trade balance figures due Tuesday are also in focus.
We remember the sharp rebound in AUD/USD around this time in 2025, when hopes for a US-Iran deal boosted risk sentiment. That optimism proved short-lived, and the geopolitical landscape remains a source of volatility. The pair is now trading significantly lower, near 0.6550, reflecting a much different economic environment.
Fed Rba Divergence And Strategy
Last year, strong inflation prints reinforced expectations for the Federal Reserve to hold rates steady. Now, with the latest March 2026 inflation data unexpectedly rising to 3.5%, markets are pricing out any near-term rate cuts from the Fed. This renewed dollar strength suggests that selling rallies in AUD/USD could be a viable strategy.
The Reserve Bank of Australia’s hawkish stance from 2025, which saw multiple rate hikes, has successfully brought inflation down from its peaks. With the latest quarterly inflation figures tracking lower, the RBA now has little reason to raise rates further, creating a policy divergence against the Fed. This fundamental backdrop supports owning downside protection, such as buying AUD/USD put options.
Concerns over China’s economy, a key focus for us in 2025, have intensified. Recent trade data for March 2026 showed a surprise contraction in both exports and imports, signaling weaker domestic and global demand. This has pushed key commodity prices, like iron ore, below the critical $100 per tonne level, directly weighing on the Aussie dollar.
Given the diverging central bank outlooks and headwinds from China, the path of least resistance for AUD/USD appears to be lower. With implied volatility in the currency pair remaining relatively subdued, purchasing put options to position for a move towards 0.6400 seems prudent. This strategy offers a defined-risk way to capitalize on further downside in the coming weeks.
