AUD/USD rose 0.25% to near 0.7170 in Wednesday’s European session, as the Australian Dollar strengthened in a risk-on market. The move followed improved sentiment after the US-Iran ceasefire was extended for an undefined period.
S&P 500 futures were up 0.6% at around 7,110, while the US Dollar Index fell 0.15% to near 98.25. The ceasefire extension was posted by US President Donald Trump on Truth Social ahead of the April 22 expiry of the two-week truce.
Markets are waiting for preliminary private PMI data for April from Australia and the US, due on Thursday. The US S&P Global Composite PMI is expected to grow faster, supported by stronger activity in manufacturing and services.
Technically, AUD/USD stayed above the 20-day EMA at 0.7081, keeping the near-term bias upward. The RSI was around 63, with resistance near the multi-year high of 0.7222 and support at 0.7081, with a deeper level at 0.7000.
Risk-on conditions are linked with rising equities and most commodities, while risk-off periods tend to favour bonds, gold, and currencies such as the USD, JPY, and CHF. In risk-on markets, AUD, CAD, NZD, RUB, and ZAR often strengthen.
Looking back to this time in 2025, we saw a surge of optimism as risk-on sentiment pushed the AUD/USD towards 0.7170. The extension of the US-Iran ceasefire was a key driver, leading many to believe the pair would revisit its multi-year high. This bullishness was based on a classic risk-on playbook, where easing geopolitical tensions benefit commodity currencies like the Australian Dollar.
That initial rally did materialize, with the pair briefly touching 0.7200 in May 2025, but the expected follow-through never came. The preliminary PMI data that investors were awaiting at the time marked a turning point, revealing the start of a divergence between the US and Australian economies. We now know that this was the peak for the Aussie dollar for the remainder of that year.
By the third quarter of 2025, Australia’s S&P Global Composite PMI had slipped to 49.5, indicating a slight contraction in private sector activity. In contrast, the US ISM Services PMI remained resilient, consistently printing above 52.0 through late 2025, which highlighted a much stronger economic footing for the United States. This economic gap began to weigh heavily on the AUD/USD exchange rate.
This divergence directly influenced central bank policy, which became the dominant theme for the rest of 2025 and into this year. The Reserve Bank of Australia held its cash rate steady at 4.35% for an extended period, while the Federal Reserve signaled a “higher for longer” stance. This has widened the interest rate differential, making it more profitable to hold US Dollars than Australian Dollars.
Furthermore, the “undefined” ceasefire with Iran proved temporary, with tensions escalating again in October 2025, triggering a flight to safety. This classic risk-off event sent the US Dollar Index soaring back above 106.0, as investors sought the safety of the world’s reserve currency. This move punished the Australian Dollar, which fell sharply as commodity prices also softened.
As of today, with AUD/USD trading near 0.6550, the bullish setup from a year ago is a distant memory. Derivative traders should now consider strategies that reflect this new reality of a stronger dollar and a weaker Australian economic outlook. Given this environment, buying AUD/USD put options to protect against further downside, or establishing bearish put spreads, could be a prudent response for the coming weeks.
