AUD/USD held in a tight range near 0.7160, up 0.12%, as Middle East tensions stayed elevated. The S&P 500 reached an all-time high on risk appetite, but a firmer US Dollar limited gains.
US President Trump extended a ceasefire, while Iran seized two container ships in the Strait of Hormuz. The strait remained closed, with the US seizing Iran-flagged tankers and Iran taking two cargo ships.
Focus Shifts To Us Data
Attention turns to US Initial Jobless Claims for the week ending 18 April, forecast at 212K versus 207K previously. Markets also await April S&P Global Flash PMIs, with manufacturing seen at 52.5 and services at 50.
Australia is due to release April S&P Global Flash PMIs after March readings showed contraction, with manufacturing at 49.8 and services at 46.3. The US had no major data releases on Wednesday.
On charts, AUD/USD traded around 0.7156 and stayed above the 50-, 100- and 200-day SMAs near 0.7048. RSI (14) was 62, with support around 0.7156 and 0.7057–0.7048, and resistance at 0.7495, 0.7765, and 0.8015.
We recall how this time last year, in April 2025, the Aussie was holding firm around 0.7160 despite tensions in the Strait of Hormuz. The market was focused on geopolitics, which put a cap on any significant moves even as risk appetite was generally strong. That period of range-bound trading was ultimately a precursor to a fundamental shift away from the Aussie dollar.
The landscape has changed dramatically since those geopolitical risks subsided, with the AUD/USD now trading near 0.6625. The focus has decisively shifted to interest rate differentials and the health of the Chinese economy. Last year’s technical support levels around 0.7050 have been broken for a long time, establishing a clear downward trend.
Rate Differentials Drive Trend
Currently, the Reserve Bank of Australia is holding its cash rate at 4.35%, signalling a peak in its tightening cycle, while the US Federal Reserve maintains a higher rate, creating a yield advantage for the Greenback. We have seen Australian inflation cool to 3.4% year-over-year, which supports the RBA’s cautious stance. This policy divergence is a major headwind for the AUD/USD pair.
Furthermore, demand from China, a key partner for Australia, remains a concern. The latest data shows China’s Caixin Manufacturing PMI at a modest 50.9, indicating only slight expansion and doing little to boost confidence in Australian commodity exports. We’ve also observed iron ore prices pulling back from their recent highs, further weighing on the Aussie’s value.
For derivative traders, this environment suggests strategies that benefit from further downside or range-bound price action. Buying put options on the AUD/USD can offer protection and profit from a continued slide toward the 0.6500 level. Alternatively, a bear put spread could be used to lower the upfront cost of the position while defining the risk and potential reward.
Given the current downtrend is driven by economic fundamentals rather than unpredictable geopolitical events, we should focus on key data releases. Implied volatility may spike around upcoming Australian CPI and US employment reports. Traders could use short-dated options, like weeklies, to speculate on the market’s reaction to these specific economic numbers.
