AUD/USD rose about 0.8% on Wednesday, ending near 0.7240 after reaching 0.7280 but not holding above 0.7250. It is at four-year highs and showed repeated upper wicks near the peak.
The US Dollar weakened after President Trump paused “Project Freedom” operations in the Strait of Hormuz amid Pakistan-mediated talks with Iran. Iran said it was reviewing the latest US proposal without a formal reply, while the strait remained largely closed to commercial traffic despite a ceasefire since 8 April.
Risk On Focus Shifts To Key Data
US April ADP private payrolls came in at 109K versus 99K expected. Markets focused instead on a risk-on tone, with attention turning to Australia’s March Trade Balance on Thursday and US NFP on Friday, forecast at 60K versus 178K previously.
On the 15-minute chart, AUD/USD traded at 0.7239 and stayed above the day’s open at 0.7205, with Stochastic RSI near 60. On the daily chart, it traded at 0.7239 above the 50-day EMA at 0.7072 and the 200-day EMA at 0.6826, with Stochastic RSI around 53.
AUD drivers include RBA rates and its 2–3% inflation goal, China’s demand, and iron ore, which totalled $118 billion a year in 2021. Trade balance and broader risk sentiment also influence the currency.
Looking back at the situation in early May 2025, we can see the bullish momentum for AUD/USD was reaching its peak around 0.7240. The market was driven by a risk-on mood and hopes of de-escalation in the Strait of Hormuz, but the fading momentum highlighted at the time proved to be a critical warning sign. Today, with the pair trading much lower around 0.6550, those four-year highs are a distant memory.
What Changed After The Peak
The major turning point was the US Non-Farm Payrolls report for April 2025, which the market had expected to be a weak 60K. The actual figure came in at a stunning 245K, forcing a rapid repricing of Federal Reserve policy and ending the broad US dollar weakness that had lifted the pair. This event underscored how quickly sentiment can shift and confirmed that the exhaustion signals near 0.7250 were an opportunity to initiate shorts.
Since then, the Reserve Bank of Australia has also contributed to the Aussie’s decline, cutting its cash rate by 25 basis points to 4.10% in March 2026 amid cooling inflation and weaker consumer spending. This policy divergence with the Federal Reserve, which has held its rates steady at 5.50%, has kept significant pressure on the Australian dollar. The interest rate differential continues to make holding short AUD/USD positions attractive through positive carry.
Furthermore, concerns over the health of the Chinese economy, which we were watching in 2025, have materialized and weighed on the Aussie. Recent data shows China’s industrial production has slowed, and the property sector remains a drag on growth, pushing iron ore prices down from over $120 a tonne last year to around $105 a tonne now. As Australia’s largest export, the lower commodity price directly weakens demand for its currency.
In the coming weeks, traders should view any strength in AUD/USD as a selling opportunity, particularly on rallies toward the 50-day moving average, currently near 0.6610. Given the established downtrend, purchasing put options can be a defined-risk strategy to position for a potential break below the year-to-date low of 0.6480. We should also consider selling out-of-the-money call options to collect premium, betting that the fundamental headwinds will cap any significant upside.
Upcoming Australian employment figures and the next US inflation report will be key catalysts to monitor. A weak jobs report from Australia or another firm inflation reading from the US would reinforce the current bearish trend. Therefore, remaining short or initiating new bearish positions on rallies appears to be the most prudent strategy for the weeks ahead.
