AUD/USD eased in Tuesday’s Asian session after a modest rebound from its lowest level since 13 April, trading around 0.7040–0.7035 as the US Dollar stayed supported. Risk appetite improved slightly late Monday after Iran and Israel said fighting would pause, but uncertainty remained due to unresolved US–Iran tensions over issues including Tehran’s nuclear programme and the Strait of Hormuz, limiting any pullback in the USD from a more than two-month high set on Monday.
The USD also drew support from hawkish Federal Reserve expectations, with markets pricing over a 70% probability of a rate increase by year-end, while odds of a Reserve Bank of Australia hike in June have faded, weighing on the Australian Dollar. Focus now turns to US May inflation data, with CPI due Wednesday and PPI on Thursday, which could steer Fed policy expectations. Technically, a break below the 200-day SMA points to a bearish bias, while traders also monitor China’s Trade Balance for near-term cues.
Fundamental Drivers Weighing On The Australian Dollar
The AUD/USD continues to face downward pressure, struggling to hold gains above the 0.6600 level. We see the ongoing strength in the US Dollar as the primary driver, making any Aussie rallies short-lived. This underlying weakness suggests the path of least resistance remains to the downside for now.
The Federal Reserve’s hawkish stance is a key factor supporting the Greenback, especially after last week’s robust jobs report showed 215,000 new jobs were added in May. With the latest US CPI inflation holding firm at 3.1%, expectations for the Fed to keep rates elevated are solidifying. Current market pricing, reflected in the CME FedWatch Tool, suggests a 65% chance of at least one more rate hike in 2026.
In contrast, we expect the Reserve Bank of Australia to remain on hold, given Australia’s softer Q1 GDP growth of just 0.3%. Concerns are also growing over demand from China, as its latest manufacturing PMI dipped to 49.8, signaling a potential contraction. This policy divergence between the Fed and RBA puts fundamental pressure on the AUD/USD pair.
Market Uncertainty, Technical Signals, And Trading Strategies
Broader market uncertainty is also lending support to the safe-haven US Dollar. Renewed tensions over international trade policies and maritime navigation are causing investors to scale back risk. This environment limits the appeal of risk-sensitive currencies like the Australian Dollar.
From a technical standpoint, the pair’s recent break and failure to reclaim the 200-day moving average near 0.6750 is a bearish signal. Therefore, we view any strength as a selling opportunity in the coming weeks. For derivative traders, this could mean buying put options to bet on a further decline or selling out-of-the-money call options to collect premium on capped rallies.
