AUD/USD fell for a second day, trading near 0.7160 in European hours on Wednesday. The drop came as the US Dollar strengthened on safe-haven demand linked to reports that the US may extend its blockade on Iran.
The Wall Street Journal said US officials reported that President Donald Trump told aides to prepare for a longer blockade of Iran. The report said the aim is to restrict shipping to and from Iranian ports to pressure Iran’s economy and oil exports, and that other options such as resuming bombing or stepping away were seen as riskier.
Fed Policy Expectations
The US Dollar also gained support from expectations that the Federal Reserve will keep rates unchanged at Wednesday’s April meeting. Markets look for the federal funds target range to stay at 3.50%–3.75% for a third straight hold.
The Australian Dollar weakened after a softer inflation report. ABS data showed annual CPI rose to 4.6% in March from 3.7% in February, versus a 4.7% forecast, and monthly CPI increased 1.1% after 0%.
AUD losses may be capped as traders expect the RBA could raise rates in May. This pricing is linked to a tight labour market and stronger-than-expected economic growth in late 2025.
Looking back a year ago, we saw the AUD/USD pair fall towards 0.7160 as the US dollar gained strength. This was driven by safe-haven demand stemming from the potential for an extended US blockade on Iran, which we now know was maintained through late 2025. The move was compounded by a slightly softer-than-expected Australian inflation report for March 2025.
Market Outlook And Positioning
The geopolitical tensions did indeed keep energy prices elevated, with Brent crude averaging over $95 per barrel in the second half of 2025, bolstering the US dollar’s appeal. This sustained pressure on commodity currencies like the Aussie dollar, which is sensitive to global growth sentiment. The persistent supply-chain issues from the Middle East ultimately weighed more heavily on risk assets than the potential benefit of higher commodity export prices for Australia.
As we anticipated in April 2025, the Federal Reserve maintained its hawkish stance, holding rates for a third straight meeting before delivering two further quarter-point hikes in the latter half of the year. Today, with the federal funds rate at 4.00%-4.25% and core inflation still sticky around 3.1%, the Fed is signaling it will remain patient. This policy divergence is a key factor driving the market now in April 2026.
While the Reserve Bank of Australia did deliver that expected rate hike in May 2025, the Australian economy has since shown signs of cooling. The most recent data for the first quarter of 2026 showed GDP growth slowed to just 0.2%, and the unemployment rate has ticked up to 4.2% from its lows in 2025. Consequently, the RBA has shifted to a neutral bias, creating a clear policy gap with the Fed.
Given this widening policy divergence and weaker Australian economic data, traders should consider positioning for further AUD/USD downside from its current level of 0.6550. Buying put options with strike prices around 0.6400 for June and July expiry offers a way to profit from a continued decline with a defined risk. The trend favors a stronger US dollar as long as the Fed remains more hawkish than the RBA.
However, traders should monitor implied volatility, which has been rising due to ongoing geopolitical concerns. If buying puts becomes too expensive, selling call spreads with a ceiling around 0.6650 could be a viable alternative. This strategy would profit from the pair trading sideways or moving lower, while also taking advantage of the elevated option premiums.
