AUD\/USD rose for a fourth day on Thursday, with the pair near 0.7087 and close to three-week highs. The US Dollar weakened after the US and Iran agreed to a two-week ceasefire.<\/p>\n
Market calm faded after Iran said three parts of the agreement had been violated following Israeli strikes on Lebanon. Risk appetite stayed cautious, leaving the Australian Dollar mainly driven by US Dollar moves, alongside support from a hawkish Reserve Bank of Australia outlook.<\/p>\n
Focus is on US\u2013Iran talks due this weekend in Pakistan. NBC cited a US official saying President Donald Trump urged Israel to ease strikes on Lebanon, while Benjamin Netanyahu said direct talks with Lebanon will begin soon on disarming Hezbollah and pursuing peace.<\/p>\n
US data was mixed, with core PCE inflation at 0.4% MoM in February and the annual rate at 3%, down from 3.1%. Final Q4 GDP growth was revised to 0.5% from 0.7%.<\/p>\n
US CPI is due on Friday, with forecasts for 0.9% MoM versus 0.3% in February, and 3.3% YoY versus 2.4%. March Fed Minutes said most saw Middle East conflict risks to jobs that could support rate cuts, while many warned inflation could stay high, especially if oil rises, which could support rate rises.<\/p>\n
Looking back at the market environment in early 2025, we saw a classic setup driven by geopolitical tension. The fragile US-Iran ceasefire created a brief period of optimism, pushing risk-sensitive currencies like the AUD up against the USD. This relief, however, was clearly temporary and highly dependent on headlines.<\/p>\n
Given the uncertainty, traders should have considered buying volatility through options. A straddle on AUD\/USD, for instance, would profit from a large price swing in either direction, which was highly likely. The ceasefire could have either collapsed, sending the pair plummeting, or solidified, causing a further rally.<\/p>\n
We saw a similar dynamic in the real world in October 2023 when the Israel-Hamas conflict began, causing the VIX volatility index to spike over 30% in just two weeks. This historical precedent from 2023 shows how quickly geopolitical events can inject uncertainty into markets, making long-volatility a prudent strategy in the 2025 scenario. The underlying risk was that a breakdown in talks could cause a surge in oil prices, much like the initial price jumps seen during Middle East conflicts of the past.<\/p>\n
The Federal Reserve’s conflicted minutes from that time further complicated the picture for interest rate derivatives. We had Fed officials acknowledging that a wider conflict could damage the economy and warrant rate cuts. At the same time, others were worried that rising oil prices would keep inflation high, demanding the opposite policy response.<\/p>\n
This inflationary concern was not theoretical; it mirrored the stubborn inflation we saw in early 2024, when US CPI repeatedly came in hotter than expected, staying above 3.4% and forcing markets to delay bets on rate cuts. The 2025 data, with PCE at 3% and Q4 GDP being revised lower, put the Fed in that same difficult position. Traders should have been cautious about taking any strong directional bets on the path of US interest rates.<\/p>\n
For AUD\/USD specifically, the hawkish RBA provided some support, but the pair was ultimately a passenger to the bigger US dollar and risk sentiment story. The key was to watch for a break of the fragile equilibrium. The upcoming talks in Pakistan and the US CPI data were the obvious potential catalysts that traders would have been positioning around.<\/p>\n
Therefore, the main response should have been to protect against sharp moves while waiting for a clearer signal. A high CPI reading, which was expected, would likely have overwhelmed any positive ceasefire news. This would have strengthened the dollar and sent AUD\/USD lower as markets priced in a more hawkish Fed.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" AUD\/USD nears three-week highs as dollar weakens on ceasefire; Middle East tensions and US inflation data.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-44570","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/44570","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=44570"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/44570\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=44570"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=44570"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=44570"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}