The Australian Dollar (AUD) experienced a decline of 0.15% on Monday, while the US Dollar maintained its strength with a gain of 0.24% in the US Dollar Index (DXY). This shift followed recent discussions between the US and Iran held in Switzerland, and at the moment, AUD/USD fell below the critical 0.7000 mark, indicating a potential re-test of lower levels.
The decline in AUD/USD can be attributed to rising expectations of a more aggressive monetary policy from the Federal Reserve. Market sentiments shifted significantly after the Fed’s recent stance caught many investors off guard, with forecasts now pricing in approximately 40 basis points of rate tightening for this year. Major financial institutions like Bank of America and Deutsche Bank anticipate two to three rate hikes by the Fed in 2026.
This week, market participants will keenly focus on the upcoming US inflation data, specifically the Core Personal Consumption Expenditures (PCE) Price Index. An increase beyond expectations could reinforce the likelihood of the Fed pursuing rate hikes, which would counter US President Trump’s calls for lower rates. Conversely, a softer inflation reading may provide some relief to the Fed and its newly appointed Chair, Kevin Warsh, who Trump has positioned to advocate for more accommodative policies.
In Australia, investors are also awaiting inflation and employment data. Should inflation surpass estimates while the unemployment rate increases, it may put pressure on the Reserve Bank of Australia (RBA), raising concerns about a potential stagflation scenario. In contrast, lower inflation and employment figures would ease the pressure on the RBA.
Geopolitical tensions appear to be receding for the moment, as the US has opted to waive sanctions on Iran for a period of 60 days. US Vice President JD Vance characterized the negotiations as having established a “good foundation” for peace, though Iran has disputed claims of engaging in nuclear talks. In related developments, the escalation of conflict in Lebanon appears to be winding down following Iran’s threats to close the Strait of Hormuz, prompting a warning from President Trump about resuming military operations if necessary.
As the week unfolds, several key reports are anticipated from the US economic calendar, including S&P Global Flash PMIs and housing data, with a particularly busy Thursday expected that features GDP reports for Q1 2026, as well as the vital Core PCE Price Index and Initial Jobless Claims data.
From a technical perspective, the daily chart for AUD/USD indicates a bearish bias as the currency pair trades around 0.6998, situated below significant moving averages. This persistence beneath the simple Moving Average Triple, located around 0.7139, raises concerns about potential upside rallies being capped. The Relative Strength Index (RSI) nearing mid-30s further indicates weak momentum.
Resistance levels are positioned around the 0.7000 pivot, with more substantial sellers likely to emerge near the 0.7140 moving average cluster and prior ascending trend supports above. On the downside, the lack of robust structural levels may render AUD/USD susceptible to further declines if the 0.7000 threshold is breached, prompting traders to consider using any recovery opportunities towards the 0.7140 range to mitigate against prevailing bearish trends.
Additionally, recent data reflects the Australian Dollar’s performance against other major currencies, with the AUD showing relative strength primarily against the Swiss Franc while experiencing mixed results against the others, as seen in the comparative percentage changes across currency pairs.
