AUD/USD fell 0.8% to about 0.7160 during Friday’s European session, with the pair under selling pressure as the US Dollar strengthened. The drop followed a rise in US Treasury yields.
The US Dollar Index (DXY) was up 0.3% near 99.20, its highest level in over two weeks. The 10-year US Treasury yield rose 1.6% to about 4.53%, its highest level in almost a year.
Markets have removed expectations of a Federal Reserve interest rate cut this year, linked to higher inflation pressure from rising energy prices. In addition, comments from Washington and Beijing after the meeting between US President Donald Trump and China’s leader Xi Jinping supported the US Dollar.
The same trade developments also supported the Australian Dollar due to Australia’s export links with China. Despite that, AUD/USD remained lower on the day.
AUD/USD traded near 0.7161 and stayed below the 20-day EMA at 0.7184. The RSI fell to about 49.
A move above 0.7184 would reduce near-term downside pressure and could target 0.7277. On the downside, a further fall could reach 0.7100.
The current bearish pressure on the AUD/USD is a pattern we’ve seen before, driven by a strengthening US Dollar. Looking back from the perspective of 2025, we recall similar moves when markets aggressively priced out Federal Reserve rate cuts due to high bond yields. Today, with the 10-year US Treasury yield hitting 4.75% for the first time this year, history appears to be repeating itself.
We see that interest rate futures markets now imply less than a 25% chance of a Fed rate cut in 2026, a dramatic shift from three months ago when two cuts were expected. This change is fueled by the latest US jobs report, which showed the addition of 280,000 nonfarm payrolls, far exceeding forecasts and supporting a hawkish Fed stance. The US Dollar Index has consequently climbed to 106.40, its highest level since late 2025.
Unlike the past, where positive US-China relations could support the Aussie, the focus now is on China’s domestic economic health. Recent data showed China’s Caixin Manufacturing PMI unexpectedly dipping to 49.8, indicating a slight contraction and dampening demand for Australian exports. This has left the Australian Dollar exposed, as its own central bank, the RBA, maintains a neutral policy stance.
With the AUD/USD pair having recently broken below its key 50-day moving average, now at 0.6610, the technical picture has turned decidedly negative for us. We believe buying put options with a strike price near 0.6500 offers a clear strategy to profit from expected further declines. This approach provides downside exposure while capping the maximum potential loss at the premium paid.
Our focus in the coming weeks will be on the 0.6450 level, which represents the low from the first quarter of 2026. A convincing break of this support would open the door for a deeper slide toward the 0.6380 zone. We should use any small rallies back towards the 0.6550 area as opportunities to initiate or add to bearish positions.
