AUD/USD rose for a third straight session, trading near 0.7100 during Asian hours on Monday. The move followed a weaker US Dollar, which fell against major peers as tariff uncertainty continued.
Trade policy uncertainty remained high after President Donald Trump criticised the Supreme Court for blocking his use of emergency powers for reciprocal tariffs. CNBC reported that Trump said on Saturday he plans to raise global tariffs to 15% from 10%, “effective immediately”, and warned that more levies could follow.
Us Iran Tensions Cap Risk Appetite
AUD/USD’s gains may be capped as risk appetite weakens due to US-Iran tensions. The New York Times reported on Sunday that Trump is considering limited airstrikes on Iran. It added that broader action could follow in the coming months if diplomacy—or an initial strike—does not change Iran’s nuclear stance.
The next round of US-Iran talks is scheduled for Thursday in Geneva. The US is also reviewing other options if talks fail. The Australian Dollar has also been supported by expectations that the Reserve Bank of Australia (RBA) may keep a tightening bias to tackle inflation.
Key drivers for AUD include RBA interest rates, iron ore prices, China’s economic health, inflation, growth, the trade balance, and overall market sentiment. Iron ore is Australia’s largest export, worth about $118 billion a year (2021 data). The RBA targets inflation at 2–3%.
Back in 2025, AUD/USD was largely driven by US tariff uncertainty and a hawkish RBA. Geopolitical risks from US-Iran tensions were seen as a possible limit on gains, while strong Australian data offered support. This helped push the pair towards 0.7100.
Market Backdrop In Early 2026
The picture looks very different today (February 23, 2026). Australian quarterly inflation eased to 3.1% last month, and the RBA has become less hawkish. Markets are no longer pricing in rate hikes. The RBA cash rate has held at 3.85% for two straight meetings, shifting away from the tightening bias seen last year.
Support for the Aussie has also weakened. China’s latest manufacturing PMI came in at 49.8, which signals contraction and points to ongoing softness in Australia’s biggest trading partner. Iron ore prices have fallen to around $95 per tonne, well below the stronger levels seen at times in 2025.
On the US side, the Dollar is no longer mainly driven by tariff headlines. Attention has shifted to the Federal Reserve’s policy pivot. The fed funds rate is now 3.75% after a cut in December. This suggests the US Dollar is not strengthening aggressively, but the Aussie’s weaker fundamentals are standing out more.
For derivatives traders, this backdrop may favour strategies that benefit from a range-bound market or a modest downside move in AUD/USD. Buying AUD/USD put options with a strike near 0.6400 could help hedge against a deeper decline, especially if the RBA turns more dovish or Chinese data weakens further. With spot around 0.6550, these puts may be relatively affordable.
Another approach is to sell out-of-the-money call options, or use call spreads with a cap near 0.6750, to generate income. This fits the view that rallies may be limited by lower commodity prices and a less supportive central bank than last year. These strategies tend to perform best if the pair stays flat or drifts lower in the weeks ahead.
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