AUD/USD fell about 0.2% on Monday to near 0.7180, after opening with a downside gap close to 0.7115. It later recovered most losses but stayed below Friday’s high near 0.7220, with small candles pointing to weaker upward drive.
Focus remains on the US-Iran ceasefire, due to expire on Wednesday night, with President Trump calling an extension “highly unlikely”. The US seized an Iranian cargo ship in the Gulf of Oman, and Iran’s Revolutionary Guard threatened retaliation and reaffirmed plans to close the Strait of Hormuz unless a US naval blockade is lifted.
Ceasefire Risks Remain Underpriced
Iran’s Foreign Ministry said on Monday it had no confirmed plans to attend a second round of talks in Islamabad, though discussions are said to be planned this week. Even so, markets are still priced for a calmer outcome.
West Texas Intermediate futures rose more than 6% to $89 a barrel overnight. US equity futures steadied into the European session, and risk-linked currencies, including the Australian Dollar, found buying on dips.
The week’s key data are limited, with an IMF Meeting and New Zealand Q1 figures on Monday, US Retail Sales on Tuesday, and flash PMIs on Thursday. On charts, AUD/USD was 0.7178, with support near 0.7138 and longer-term levels at the 50-period EMA (0.7009) and 200-period EMA (0.6779), while Stochastic RSI readings included 98.19.
The market seems to be ignoring the major risk this week, which is the US-Iran ceasefire expiring on Wednesday. Despite WTI oil prices jumping to $89 a barrel, risk assets like the Aussie dollar are finding support. This suggests a dangerous level of complacency among traders.
Options Strategies For Elevated Event Risk
We must remember that over 20% of the world’s daily oil supply passes through the Strait of Hormuz, a chokepoint Iran has threatened to close. A failure of talks could easily see oil spike well above $100, a scenario the current AUD/USD price near 0.7180 does not reflect. Looking back at the oil market volatility of 2025, we know how quickly these situations can escalate.
Given this disconnect, buying AUD/USD put options seems like a prudent strategy for the coming weeks. This offers a low-cost way to profit from a potential sharp decline if the ceasefire fails and geopolitical risk is suddenly priced back in. The defined risk of an option premium is appealing when facing such an uncertain binary event.
Implied volatility appears cheap, with measures similar to the CBOE Volatility Index (VIX) hovering near a low of 14, indicating little fear. This presents an opportunity to buy volatility through structures like straddles on the Aussie dollar. Such a position would profit from a large price move in either direction, which is likely following Wednesday’s deadline.
Even if a diplomatic solution is found, the technical picture suggests caution is warranted. The daily Stochastic RSI is extremely overbought at 98.19, signaling that the recent rally is exhausted. This makes it difficult to justify holding long positions, as the potential for further gains appears limited without a significant pullback first.
