AUD/USD rose to about 0.6910 in early European trade on Monday, supported by optimism over a possible US-Iran ceasefire. The US March ISM Services PMI report is due later on Monday. Bloomberg, citing Axios, reported that the US, Iran and regional mediators are discussing a potential 45-day ceasefire that could lead to a permanent end to the war. The report said the chance of a deal within the next 48 hours is low, while Donald Trump said a deal could be reached before a Tuesday deadline.

Us Data And Fed Outlook

US economic data has supported expectations that the Federal Reserve may keep interest rates high, which can support the US dollar and limit AUD/USD gains. The US added 178,000 jobs in March, after a 133,000 decline previously (revised from -92,000), and above the forecast 60,000 gain. The Unemployment Rate fell to 4.3% in March, linked largely to a reduction in the labour force. In Australia, the Reserve Bank of Australia lifted the Official Cash Rate to 4.10% at its March meeting. Markets see a chance of another rate rise in May, amid higher oil prices and a tight labour market. Westpac expects three further increases in 2026, taking the cash rate to 4.85%, last seen in November 2008. Looking back at the optimism in early 2025, we saw the AUD/USD testing the 0.6900 level on hopes of a US-Iran ceasefire. Today, we are trading significantly lower around 0.6550, which shows that geopolitical headlines offer only temporary support for the Aussie. The powerful trend has instead been driven by the widening interest rate differential between the US and Australia.

Policy Divergence And Trade Ideas

We recall that the strong US jobs report for March 2025, which added 178,000 jobs, helped solidify the Federal Reserve’s hawkish stance. The data released just last Friday for March 2026 was even more robust, showing a gain of 291,000 jobs and keeping the unemployment rate at a low 3.8%. This continued economic strength makes it difficult for the Fed to consider rate cuts, keeping the US dollar in demand. Last year, the market was pricing in aggressive Reserve Bank of Australia hikes, with some analysts predicting a cash rate of 4.85% by now. That forecast did not materialize, as the RBA has held its rate firm at 4.35% since its last hike in November 2023 to assess the impact on the economy. This policy pause, while the US remains strong, continues to weigh on the Australian dollar. This divergence in central bank policy suggests traders should consider strategies that benefit from further AUD/USD weakness or stagnation in the coming weeks. Buying put options on the Australian dollar provides a direct way to position for a drop towards the 0.6400 level, with risk limited to the premium paid. Alternatively, selling out-of-the-money call options or establishing bear call spreads could be effective for collecting premium, assuming the pair will struggle to rally past key resistance at 0.6650. Create your live VT Markets account and start trading now.

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