Technical Bias And Key Levels
The Relative Strength Index remains bullish, though there are still downside risks. A move above 0.7100 would put focus on 0.7123 (18 March high), then 0.7187 (yearly high), followed by 0.7200. If AUD/USD falls below the 50-day Simple Moving Average at 0.6981, it may retest 0.6944 and then 0.6900. Key drivers of the Australian Dollar include RBA interest rate settings and inflation targets of 2–3%, plus quantitative easing or tightening. Other drivers include China’s economic performance and Australia’s trade balance. Iron ore is Australia’s largest export, worth $118 billion a year based on 2021 data, with China as the main destination. Looking back to this time in 2025, we saw a bullish structure forming for the Aussie dollar as it pushed past the 0.7000 mark. Today, the situation is more complex, with the pair consolidating around 0.6650. The clear upward momentum we saw then has given way to a more sideways market heading into the second quarter of 2026. A key driver remains the interest rate differential, which has evolved since last year. We’ve seen the Reserve Bank of Australia hold its cash rate firm at 4.35%, while the US Federal Reserve has begun a cautious easing cycle that started late in 2025. This narrowing policy gap provides a fundamental support for the Aussie that should limit significant downside in the weeks ahead.Macro Drivers And Volatility Setup
We must also watch China, as its economic health directly impacts the Aussie through trade and commodity prices. February’s manufacturing PMI data was a mixed bag, coming in at 49.9, which shows the recovery there is still fragile. This has kept a lid on iron ore prices, which are hovering near $115 per tonne after failing to break past the $130 resistance level seen earlier this year. Given this backdrop of supportive interest rates but questionable Chinese demand, implied volatility in AUD/USD options could be undervalued. A strategy to consider would be buying long-dated strangles, which would profit from a significant price move in either direction before the end of the second quarter. This allows us to take a position on a breakout without betting on the specific direction. The key risk remains a sharper-than-expected global slowdown, which would weigh heavily on a risk-sensitive currency like the Aussie. Traders should use the year-to-date low around 0.6510 as a key level of support. A sustained break below that could signal a deeper move down, invalidating the current range-bound thesis. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
