Oil Surge And Risk Off Dollar Bid
Crude Oil rose by over 25% intraday, adding to inflation concerns and reducing expectations for near-term Federal Reserve rate cuts. Risk-off trading and the chance of wider Middle East tensions supported the US Dollar and limited gains in AUD/USD. On the 4-hour chart, price sat just below the rising 200-period simple moving average, with near-term bias neutral but slightly lower. MACD was near flat around zero, while RSI was near 46. Resistance was seen at 0.7050 and then 0.7080. Support was near the 200-period SMA around 0.7020, then 0.6990 and 0.6960. We are seeing the AUD/USD pair struggle to gain any real traction above the 0.7000 level. While positive inflation news out of China offers some support, the bigger story is the rush to the safe-haven US dollar. This is driven by significant geopolitical tensions in the Middle East that are overpowering minor positive factors.Fed Policy Expectations Shift
The recent intraday surge in WTI crude oil prices, which jumped over 25% to briefly top $105 per barrel, is a major concern. This sharp rise directly fuels fears of global inflation and makes it much less likely the US Federal Reserve will consider cutting interest rates anytime soon. This expectation of higher US rates for longer is providing a strong foundation for the dollar. Looking at the data, we see the market has rapidly changed its tune on Fed policy, with fed funds futures now pricing in less than a 20% chance of a rate cut before the June meeting. This is a dramatic shift from just a month ago when expectations were closer to 50%. The stubborn US CPI print of 3.5% we saw for January 2026 has only confirmed that inflation is not yet defeated. Although China’s consumer inflation hitting 1.3% is a welcome sign, it is not enough to move the needle for the Aussie dollar right now. After the persistent weakness we observed in China’s economy throughout 2025, one data point cannot outweigh the global risk-off mood. Therefore, we view the Aussie’s upside as very limited. For traders, this suggests the path of least resistance is lower, or at best, sideways. Given the strong resistance near 0.7050, we should consider strategies that benefit from this ceiling holding firm, such as selling call spreads with a strike price above 0.7080. Alternatively, buying put options could be a direct way to position for a potential break below the key 0.6990 support level. Create your live VT Markets account and start trading now.
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