AUD/USD trades near 0.7080 on Monday, down 0.05%, after briefly rising above 0.7100 during the Asian session. The pair has turned lower as the Australian Dollar weakens against most major currencies due to renewed trade uncertainty and position adjustments. The US Dollar Index (DXY) is near 97.60 and is slightly lower on the day. The US Dollar remains under pressure after a Supreme Court ruling limited the scope of some tariff measures. This has raised new questions about the direction of US trade policy.

Global Tariffs And Risk Sentiment

US President Donald Trump announced a 15% global tariff on imports. This move has increased risk aversion, lifted foreign exchange volatility, and boosted demand for defensive assets. It offers some support to the US Dollar, but it weighs on cyclical currencies such as the Australian Dollar. US rate expectations are also shaping the Dollar. Markets are pricing in at least two more 25-basis-point Federal Reserve cuts by year-end. Weaker-than-expected GDP and softer PMI data support that view. In Australia, the Reserve Bank of Australia is still seen as hawkish, backed by stronger-than-expected data. This policy gap versus the Fed helps limit AUD/USD losses. Even so, the pair remains highly sensitive to sentiment and trade headlines. Many traders remember the volatility in mid-2025, when uncertainty over US trade policy pushed AUD/USD around the 0.7080 area. The market was split between expectations for Fed rate cuts and a still-hawkish RBA. That period showed how quickly currencies can move after surprise policy announcements.

Shifting Central Bank Outlook

The backdrop has changed. AUD/USD now trades much lower, near 0.6750. The aggressive global tariffs seen in 2025 have been replaced by a more targeted trade approach, which has reduced that specific source of volatility. The bigger change is in central bank expectations: US CPI has strengthened to 3.1%, while Australian inflation has cooled to 2.8%. Because of the sharp swings in 2025, implied volatility in AUD/USD options remains an important area to watch. With the Fed now hinting at a possible hike and the RBA sounding more cautious, surprise data could still trigger large moves. Traders may consider options strategies such as straddles to position for a volatility jump, regardless of direction. The policy divergence that helped support the Aussie in 2025 has now flipped, creating a headwind for the currency. Current pricing from the CME FedWatch Tool shows nearly a 40% chance of a Fed rate hike by July. That is a clear shift from the earlier easing bias. This change suggests that selling into strong AUD/USD rallies could be a workable strategy in the coming weeks. Commodity prices also matter. Iron ore has recently slipped below $120 per tonne, which pressures a key source of Australian export revenue. This adds risk for the Aussie and supports a more cautious outlook. Using tight stop-losses on long AUD positions remains important, especially to avoid being caught in a sudden sentiment swing like those seen during the 2025 trade disputes. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now