AUD/USD Hovering Near 0.7070 as Risk Sentiment Improves, Market Eyes Fed Decision
AUD/USD hovered near 0.7070 on Wednesday, broadly steady as the Australian dollar drew support from improved risk sentiment after fresh developments in the US-Iran conflict. The mood shift followed comments from US President Donald Trump backing a ceasefire framework with Iran, saying the Strait of Hormuz had reopened while warning bombing could resume if Tehran “acts up”. Shipping data showed several Iranian oil tankers transiting the Strait after the framework deal, feeding expectations that Middle East supply may return and weighing on energy prices, though uncertainty remains elevated.
Attention also turned to the Federal Reserve’s June decision. Markets are positioned for rates to be held in a 3.50%–3.75% range at the first meeting chaired by Kevin Warsh, as policymakers weigh easing oil-related inflation pressures against still-elevated headline inflation and resilient US activity. On the four-hour chart, the pair traded above the 20-period SMA at 0.7064 but below the 100-period SMA at 0.7101, with RSI around 55. Resistance sat near 0.7074 then 0.7101, while support was seen at 0.7065, alongside 0.7064, 0.7058 and 0.7054.
Australian Dollar Support from Commodities and China Relations
We are observing the AUD/USD pair trading with a neutral tone around 0.6650. The Australian Dollar is finding some support from an easing of trade tensions with China. Recent diplomatic talks have lifted risk sentiment, which typically benefits the Aussie.
This improved mood is reinforced by a recovery in key commodity prices. Iron ore futures, a crucial driver for the Australian economy, have climbed back to $115 per tonne this week after a slump in May. This strength in Australia’s main export provides a solid fundamental reason for the currency’s resilience.
Policy Uncertainty and Volatility Trading Strategies
However, we remain cautious ahead of the upcoming Federal Reserve policy decision next week. While the Fed is widely expected to hold its key interest rate steady at 4.25%-4.50%, any surprisingly hawkish language could strengthen the US dollar and cap gains for the pair. This contrasts with the Reserve Bank of Australia, which appears firmly on hold with its cash rate at 3.85%, creating a rate differential that favors the US dollar.
From a technical standpoint, we see AUD/USD holding a cautiously bullish bias above its 20-day moving average near 0.6625. Immediate resistance lies at the recent high of 0.6680, with a break needed to challenge the more significant 100-day average at 0.6710. The Relative Strength Index is hovering around 52, suggesting momentum is steady rather than aggressive.
Given this mixed backdrop, we believe selling short-dated volatility could be a viable strategy. Implied volatility for AUD/USD one-month options has fallen to a three-month low of 8.2%, suggesting the market expects the pair to remain confined within a range. We are therefore considering strategies like iron condors with strikes set outside the 0.6600 to 0.6710 range to collect premium from this expected lack of movement.
