AUD/USD rose after two days of declines, trading near 0.7010 in Asian hours on Monday. The move followed the release of Chinese economic data, which can affect the Australian Dollar due to trade links between China and Australia. China’s National Bureau of Statistics said Retail Sales increased 2.8% year-on-year in February, compared with 2.5% expected and 0.9% in December. Industrial Production rose 6.3% year-on-year, versus a 5.1% forecast and 5.2% previously.

Dollar Weakness Supports Risk Mood

The pair stayed supported as the US Dollar weakened while risk aversion eased, after The Guardian reported US Energy Secretary Chris Wright expects the US-Israel conflict with Iran to end within “the next few weeks”. The report suggested this could allow oil supplies to recover and energy prices to fall. Tensions also increased after US forces reportedly targeted every military site on Kharg Island, which handles nearly 90% of Iran’s oil exports. President Donald Trump said oil infrastructure was not struck, while Iran warned it could retaliate against US-linked oil facilities in the region. Trump called on allied nations, including the UK, France, China, and Japan, to help secure the Strait of Hormuz, with reports of a possible White House announcement soon. EU foreign ministers are meeting in Brussels to discuss a naval response to the effective closure of the Strait. Attention now turns to the US Federal Reserve meeting on Wednesday. No change to the federal funds rate is expected, with focus on guidance for the rest of the year and inflation risks linked to higher energy prices.

China Data Lifts Aussie Dollar Outlook

The better-than-expected economic data from China provides a short-term boost for the Australian dollar. We are seeing Australia’s commodity exports to China remain robust, with iron ore shipments in February 2026 totaling over 78 million tonnes. This underlying strength suggests that selling out-of-the-money puts on the AUD/USD could be a viable strategy to collect premium while the 0.7000 level holds. Conflicting reports from the Middle East are creating significant uncertainty for the US dollar and oil markets. While talk of the conflict ending has eased immediate fears, the US strikes on Kharg Island introduce a serious risk of escalation. This push-and-pull on sentiment makes trading short-term volatility, perhaps through options on the VIX index, a key consideration. We must prepare for the risk of a sudden oil price shock, as nearly 90% of Iran’s oil exports are now threatened. Looking back, we remember how Brent crude prices jumped 12% in a single week in mid-2025 when shipping was last seriously threatened in the Strait of Hormuz. Consequently, buying call options on crude oil futures could serve as a vital hedge for portfolios over the next few weeks. The Federal Reserve meeting on Wednesday is the main event risk this week. While no rate change is expected, the latest US inflation report for February 2026 showed CPI at a stubborn 3.2%, which will force policymakers to address rising energy costs. Any surprisingly hawkish tone from the Fed would likely strengthen the US dollar, making protective puts on pairs like AUD/USD a sensible precaution ahead of the announcement. Create your live VT Markets account and start trading now.

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