AUD/USD rose 0.72% on Wednesday to 0.7173 as risk appetite improved. WTI held above $91 but was down nearly 0.80%, with lower oil volatility supporting the Australian Dollar.
US President Donald Trump said the war was “close to over”. Bloomberg reported rumours of a possible two-week ceasefire extension, while Trump said it may not be needed as talks continue.
The Federal Reserve Beige Book said economic activity increased and employment stayed steady. It also said the Middle East conflict was a “major source of uncertainty” affecting hiring, pricing, and capital investment.
The Beige Book described inflation as moderate, but March US Producer Price Index inflation was 4%. This kept markets alert to the path of monetary policy in 2026.
St. Louis Fed’s Alberto Musalem said higher oil prices could feed into core inflation, with underlying inflation slightly below or around 3%. Australia’s March jobs report is expected to show 20K jobs added and an unemployment rate of 4.3%.
Markets price at least 54 basis points of RBA tightening by year-end, implying two 25-bps hikes, with 66% odds of a rise at the next meeting. Technical levels noted include support near 0.7043 and 0.7037, RSI (14) near 66, and resistance around 0.7440, 0.7685, and 0.8015.
We remember the optimism from April 2025, when hopes for a truce helped push the AUD/USD above 0.7170. That bullish momentum faded as the Reserve Bank of Australia failed to deliver the aggressive rate hikes that were priced in by the market. The pair has since trended lower, trading today around the 0.6750 level.
The situation now is quite different, as the RBA remains on hold with Australian CPI having cooled to 3.1% and the unemployment rate drifting up to 4.5%. In contrast, the US Fed is still grappling with stickier core inflation, which recent data puts at 3.4%, giving the US dollar a clear yield advantage. This ongoing policy divergence continues to weigh on the Aussie dollar.
This lack of a strong directional driver has crushed volatility, with AUD/USD one-month implied volatility hitting its lowest level in over a year. This environment suggests option selling strategies, like short strangles, could be effective for capturing premium decay. We believe the pair will remain range-bound in the near term.
The support level we watched near 0.7040 back in 2025 has now become a major resistance ceiling. Traders should watch the current year-to-date low around 0.6680 as the next key support. Given the low volatility, purchasing cheap, out-of-the-money puts could serve as a cost-effective hedge against any sudden return of risk aversion.
