The USD is under pressure due to potential political issues, as the US government is close to a possible partial shutdown. There is also uncertainty surrounding who will lead the Federal Reserve, especially with the upcoming policy announcement.

Key Factors Driving The AUD

Several key factors affect the AUD, including RBA interest rates, Iron Ore prices, trade relationships with China, and Australia’s inflation. China plays a crucial role as Australia’s largest trading partner, so its economic health significantly impacts the AUD. Iron Ore, valued at $118 billion annually, directly affects the AUD. A trade surplus strengthens the Australian Dollar. Reflecting on 2025, the Australian dollar peaked at around 0.6940. Today, it trades at about 0.6750, showing a shift over the past year. The strong stance of the Reserve Bank of Australia (RBA) then supported the currency, but the global situation has changed. The RBA’s aggressive approach has eased with recent inflation data showing a dip. The quarterly CPI for Q4 2025 is 3.6%, down from previous highs. Although the cash rate is still high at 4.35%, the market is unsure about more hikes and is starting to think about potential cuts later this year. This is a shift from early 2025, when another rate hike seemed likely. In contrast, the US dollar is not as affected by the political uncertainty from January 2025 regarding possible government shutdowns. The focus is now on the Federal Reserve’s data-driven strategy, with US inflation steady at around 3.1%. This has kept the Fed cautious. The market is anticipating a slow and steady approach to easing from the Fed, providing stability for the greenback.

Considering Strategies For AUD/USD

We should also think about the external factors affecting the Aussie dollar, which are not as favorable as they were a year ago. After a strong performance in 2025, Iron Ore prices have recently dropped to about $115 per tonne, due to concerns about China’s property sector. Recent manufacturing PMI figures from China indicate an uneven economic recovery, which affects demand for Australian exports. Given this context, we might explore strategies that take advantage of price stability or protect against potential declines in AUD/USD. Selling out-of-the-money call options can be a good strategy to collect premium, as it seems unlikely that the AUD will rally significantly for now. Additionally, buying put options can serve as a smart way to guard against any negative surprises from Australian economic data or a further slowdown in China. Create your live VT Markets account and start trading now.

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