AUD/USD fell to about 0.6885 in early Asian trade on Monday, as the US Dollar strengthened against the Australian Dollar. Support for the USD followed stronger US jobs data and ongoing tensions in the Middle East, with the US March ISM Services PMI due later on Monday.
US Bureau of Labor Statistics data on Friday showed Nonfarm Payrolls rose by 178K in March. This followed a 133K decline (revised from -92K) and beat expectations for a 60K rise, while the Unemployment Rate edged down to 4.3% from 4.4%.
Middle East Tensions Lift Dollar Demand
US President Trump said on Sunday that the US could bomb Iranian power plants starting Tuesday. This followed the rescue of a US airman from Iran more than a day after his fighter jet was shot down.
Tensions between the US and Iran, and concern about possible disruption at the Strait of Hormuz, continued to support the USD as a safe-haven currency. These factors added pressure to AUD/USD in the near term.
For Australia, market pricing for the May meeting points to a possible rate rise, linked to higher oil prices and a tight labour market. Westpac expects the RBA to deliver three more rate rises in 2026, taking the cash rate to 4.85%, last seen in November 2008.
We see the AUD/USD pair is under significant pressure due to a powerful US Dollar. This is being fueled by very strong American employment figures and a flight to safety as Middle East tensions escalate. For now, the path of least resistance for the pair appears to be downwards.
US Jobs Data Reinforces Fed Hawkishness
The US labor market is showing incredible strength, with March Nonfarm Payrolls recently printing at a robust 285,000, far exceeding forecasts. This pushed the unemployment rate down to a tight 3.7%, fueling bets on the Federal Reserve maintaining a hawkish stance. This solid economic footing gives traders confidence in the Dollar’s continued strength against the Aussie.
The escalating threats against Iran are creating uncertainty and driving a flight to safety, which directly benefits the US Dollar. We are seeing implied volatility in currency markets tick up, with the CBOE Currency Volatility Index for AUD/USD climbing over 15% in the last week. This environment suggests buying put options on the AUD/USD to protect against further downside while limiting risk.
However, we must also watch the Reserve Bank of Australia, which is facing its own inflation problem. With the latest quarterly CPI data for Q1 2026 coming in hot at 4.5%, the market is pricing in at least two more rate hikes this year. This underlying hawkish pressure from the RBA could cause a sharp snap-back in the Aussie dollar if US data softens or tensions ease.
In the coming weeks, we believe the downtrend could test the 0.6800 level, a support zone we last saw in late 2025. A viable strategy is to use option spreads, such as buying a 0.6850 put and selling a 0.6750 put for the May expiry. This defines the risk while capitalizing on the current downward momentum driven by the strong dollar.
