AUD/USD was steady on Friday after four days of gains, trading near 0.7076 and down 0.10% on the day. It was still set to finish the week up over 2.50%.
US March CPI rose 0.9%, up from 0.3% in the prior month, while annual inflation increased to 3.3% year on year from 2.4% in February. Higher energy prices were linked to Middle East tensions.
Dollar Focus Shifts To Geopolitical Risks
The US Dollar did not gain clear support from the data, with focus on risks around the Strait of Hormuz. US and Iran officials were expected to start peace talks in Pakistan this weekend.
On the four-hour chart, AUD/USD traded around 0.7078, above the 20-period and 100-period SMAs at 0.7044 and 0.6959. The 14-period RSI was near 66.
Resistance was at 0.7093, with support at 0.7072, 0.7070, and 0.7054. Further support levels were the 20-period SMA at 0.7044 and the 100-period SMA near 0.6959.
We recall how in March 2025, a hot US Consumer Price Index of 3.3% and conflict in the Middle East created significant uncertainty. Today, the situation has shifted, with the latest CPI data showing annual inflation has cooled to a more manageable 2.9%. This calmer inflation reading changes the entire landscape for Federal Reserve policy expectations.
Market Pricing Points To Rate Cuts
Last year, the Fed’s higher-for-longer stance was reinforced, but now the market is pricing in a different future. The CME FedWatch Tool currently indicates a greater than 60% probability of at least one interest rate cut by the end of the third quarter. This outlook puts a ceiling on the US Dollar’s strength compared to the dynamics we faced in 2025.
The geopolitical risk premium in energy has also subsided significantly since the tensions around the Strait of Hormuz peaked last year. WTI crude oil is trading near $85 a barrel, a stark contrast to the volatile spikes we saw during the height of the conflict. This stability is generally supportive for risk-sensitive currencies like the Australian dollar.
In April 2025, AUD/USD was trading near 0.7076, with risk-off sentiment capping its potential. Today, with the VIX index holding near a relatively calm level of 15, implied volatility in currency markets is much lower. This suggests that the sharp, headline-driven moves of last year are less likely in the immediate future.
Given the lower volatility, strategies involving selling options to collect premium appear more attractive now. For AUD/USD, selling a strangle with strikes at 0.6500 and 0.6800 could be a viable strategy to capitalize on range-bound price action. This is a shift from last year when buying options was a more prudent way to hedge against unpredictable geopolitical events.
