AUD/USD edged down towards 0.7220 on Thursday as the US Dollar strengthened after US April Retail Sales rose 0.5% month-on-month. The reading matched expectations and followed 1.6% growth in March.
US Producer Price Index data showed producer inflation rose 1.4% month-on-month in April, with annual PPI at 6.0%. US Treasury yields rose on Wednesday and eased on Thursday, while pricing for Federal Reserve rate cuts decreased and expectations of further tightening increased.
A White House official said a meeting between US President Donald Trump and China’s President Xi Jinping was described as “good”. The leaders discussed economic cooperation, including market access for American businesses, Chinese investment, and Chinese purchases of US agricultural products.
On the 4-hour chart, AUD/USD traded at 0.7223, below the 20-period SMA at 0.7241 and above the 100-period SMA at 0.7197. The pair held around 0.7223, while RSI near 44 pointed to fading momentum.
Resistance was noted near 0.7239, 0.7241, and 0.7243. Support levels were cited at 0.7223, 0.7220, and 0.7197.
The article said the technical section was produced with help from an AI tool.
Looking back at this time in 2025, we saw the US dollar strengthen significantly after strong retail sales and hot producer inflation data. This situation feels familiar, as the latest US Core PCE data for March 2026 just surprised to the upside, coming in at 3.1% and reviving concerns about persistent inflation. This suggests the dollar’s underlying strength, driven by a robust US economy, remains a key factor.
The market reaction last year involved traders aggressively scaling back expectations for Fed rate cuts, a trend we are seeing again right now. Currently, the CME FedWatch Tool shows the probability of a rate cut by September 2026 has collapsed to below 30%, a sharp drop from just a month ago. This contrasts with the Reserve Bank of Australia, which is signaling a more cautious stance after Australia’s Q1 2026 GDP growth came in at a weaker-than-expected 0.2%.
This growing policy divergence puts downward pressure on the AUD/USD, much like it did when the pair approached the 0.7220 level in May 2025. For derivative traders, this environment favors strategies that profit from or hedge against further Aussie dollar weakness. Buying put options on the AUD/USD provides downside exposure while capping risk, with strike prices below the current spot offering a strategic entry.
We should also remember the brief optimism from the US-China meeting in 2025, which has since faded amid renewed trade friction over semiconductor technology. This geopolitical uncertainty is boosting implied volatility, making options pricing more dynamic. Traders should therefore consider using volatility-focused strategies or be prepared for sharp, headline-driven moves in the pair.
