AUD/USD fell for a third day on Thursday and traded below 0.6900, down 0.76%, as risk sentiment weakened on Middle East escalation concerns and doubts over a ceasefire between the US and Iran. Wall Street closed lower, while rising US Treasury yields supported the US Dollar. The US Dollar Index rose 0.37% to 100.00. Energy prices climbed after the war led to a quasi-closure of the Strait of Hormuz; year-to-date, WTI is up 64% and petrol is nearly 80%.

Us Labor Market Signals

US Initial Jobless Claims for the week ending 21 March increased from 205K to 210K, in line with expectations and the lowest in nearly two years. The four-week average slipped from 210.75K to 210.5K, pointing to a steadier labour market. AUD/USD had moved towards 0.7100 after the Reserve Bank of Australia’s rate rise, but then reversed as demand for the US Dollar grew. The pair traded around 0.6892; resistance is near 0.7000 and 0.7070, with support near 0.6890 and 0.6800. The RBA targets inflation of 2–3% using interest rates and can also use quantitative easing or tightening. Iron ore is Australia’s largest export at $118 billion a year (2021 data), and China is its main destination. We remember how last year, around this time, the flare-up in the Middle East sent the US Dollar soaring and crushed the Aussie. Today, the situation is less of a crisis and more of a tense standoff, which changes how we should view risk. The AUD/USD, now trading near 0.6750, reflects this new, uneasy calm.

Options Strategies And Volatility

The massive spike in WTI oil prices we saw in early 2025 is no longer the main driver, with crude now stable around $85 a barrel. This removes some of the intense safe-haven demand for the US Dollar that previously hammered the Aussie. Traders should consider that a sudden shock to oil is less likely now, making options strategies with defined risk, like vertical spreads, more attractive than outright short positions. The Reserve Bank of Australia’s recent pause, holding the cash rate at 4.50%, shows they are less aggressive than they were this time last year. This contrasts with the US Federal Reserve, which continues to signal a “higher for longer” stance on rates, keeping the US dollar fundamentally strong. This policy divergence suggests a cap on any significant AUD/USD rallies, making selling call options above 0.6900 a potential strategy. We must also focus on China, which remains a weak spot for the Australian dollar’s outlook. Recent data showing China’s manufacturing PMI dipping to 49.8 indicates a sputtering recovery for Australia’s largest trading partner. This underlying weakness supports a bearish to neutral outlook, suggesting that buying puts on the AUD/USD could offer good protection against further disappointment from China. Last year, the pair broke down decisively below 0.6900; today, that level acts as significant resistance. Implied volatility has decreased since the peak of the crisis in 2025, making options cheaper. Given the strong resistance and weak fundamentals, purchasing put options with a strike price around 0.6700 could be a calculated way to position for a potential slide towards the 0.6500 level in the coming weeks. Create your live VT Markets account and start trading now.

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