AUD/USD ticked up on Monday as trading focused on US-Iran developments around the Strait of Hormuz. The US Dollar stayed soft as talk of a possible deal continued.
The pair traded near 0.7176 after a bearish weekly gap and a low around 0.7116. The US Dollar Index (DXY) held near 98.00 after a bullish gap and a high of 98.49.
Truce Talks And Strait Of Hormuz Focus
A two-week truce is due to end on Wednesday, with a possible second round of talks expected in Pakistan. Iran has not confirmed it will take part.
Higher oil prices kept inflation concerns in view and supported expectations of slower rate cuts from the Federal Reserve. Markets also expected the Reserve Bank of Australia to keep raising rates due to added inflation pressure.
On the daily chart, AUD/USD stayed above the 20-day SMA at 0.7008 and above the lower Bollinger band at 0.6786. The upper Bollinger band near 0.7230 was the next resistance level.
The RSI rose to 65.48 and the MACD remained positive. A close above 0.7230 could extend gains, while support sat at 0.7008 and 0.6786.
How The Narrative Shifted Since 2025
Looking back at the analysis from 2025, we saw the AUD/USD rally towards 0.7200, driven by hopes of a US-Iran deal and a hawkish Reserve Bank of Australia. The situation today is quite different, with the pair now trading closer to 0.6650. That bullish momentum has clearly faded over the past year.
The fragile diplomatic agreement reached in mid-2025 did prevent a wider conflict, but it failed to fully stabilize energy markets. With West Texas Intermediate crude oil prices currently holding firm above $85 per barrel, traders should watch for sudden spikes in volatility. This persistent tension continues to place a floor under the US Dollar’s safe-haven appeal.
The central bank outlook we were tracking has also inverted, as the RBA has held its cash rate steady at 4.35% for the last three consecutive meetings. Conversely, the Federal Reserve has initiated its easing cycle with a 25 basis point cut last month, a move that markets have been anticipating. This growing policy divergence is now a primary driver of currency weakness for the Aussie.
Given this environment, implied volatility in AUD/USD options is beginning to rise, with one-month volatility recently climbing from a low of 8.5% to near 10.2%. This suggests traders are pricing in a larger potential move in the coming weeks. We believe buying straddles could be an effective strategy to capitalize on a breakout, regardless of the direction.
The strong bullish technical signals from last year are long gone, as the pair now struggles below its 50-day moving average. For those anticipating a rebound, using long-dated call options with a strike price around 0.6800 offers a defined-risk way to position for potential upside. This approach avoids the unlimited downside risk of holding a direct long position in the spot market.
