AUD/USD traded near 0.7140 on Thursday, down 0.27% on the day, and stayed in a tight range as sentiment remained weighed down by geopolitical tensions.
Australian data offered some support, with S&P Global PMI reports showing manufacturing back in expansion and services rebounding. The outlook stayed uncertain due to weak demand and rising costs.
Risk appetite fell as tensions between the US and Iran increased, following incidents in the Strait of Hormuz and no progress in peace talks. This lifted demand for safe-haven assets and weighed on risk-linked currencies such as the AUD.
Société Générale said the AUD is exposed because Australia relies on imported petroleum products. It said any extended supply disruption could increase AUD volatility.
In the US, Initial Jobless Claims rose to 214K, above expectations, but the market reaction was limited. Attention remained on geopolitics and oil prices.
The USD also drew support from higher Treasury yields and lower expectations of Federal Reserve rate cuts, with the Dollar Index (DXY) edging higher. Markets also awaited US PMI figures later in the day.
We are seeing AUD/USD struggle around 0.6550, pressured by a risk-off mood as global growth fears resurface. This feels very similar to the environment in 2025 when US-Iran friction kept the Aussie pinned down despite some decent local data. The dynamic of global fears trumping domestic positives is repeating itself.
While we’ve seen Australian inflation cool slightly to 3.2% this past quarter, the Reserve Bank of Australia is staying cautious, which limits the Aussie’s upside. Just as we saw in 2025 with petroleum supply fears, the current weak demand from China is weighing heavily on sentiment for the currency. This makes selling out-of-the-money AUD call options an attractive way to collect premium while betting that the currency’s upside remains capped.
On the other side, the US Dollar Index (DXY) is holding firm above 105, supported by the 10-year Treasury yield pushing back towards 4.5%. With US Non-Farm Payrolls consistently adding over 200,000 jobs each month in early 2026, the market is pricing out any near-term Federal Reserve rate cuts. This robust US backdrop suggests that any rallies in AUD/USD are likely to be sold into.
Given this environment, we believe traders should consider buying AUD/USD put options with a one-to-two-month expiry. This strategy provides downside exposure while capping the maximum loss if sentiment suddenly improves. The implied volatility on the pair has risen to 9.5%, suggesting the market is bracing for bigger swings, making puts a potentially cost-effective way to position for further weakness.
