AUD weakens as U.S. dollar stays firm
The Australian Dollar fell 0.15% on Monday as the U.S. Dollar maintained its recent strength. The U.S. Dollar Index, known as DXY, held gains of 0.24% after the latest round of talks between the United States and Iran in Switzerland.
At the time of writing, AUD/USD had dropped below the 0.7000 level, leaving the pair exposed to a possible retest of lower prices.
Fed expectations weigh on risk sentiment
The decline in AUD/USD came as investors adjusted to a more hawkish outlook for the Federal Reserve. Markets were pricing in nearly 40 basis points of tightening this year, showing that traders are beginning to expect a firmer policy stance from the U.S. central bank.
Major commercial banks have also shifted their expectations. Bank of America expects three Federal Reserve rate hikes in 2026, while Deutsche Bank anticipates two increases.
Core PCE becomes the key U.S. data point
This week, attention will focus on U.S. inflation data, especially the Core Personal Consumption Expenditures Price Index. A stronger-than-expected reading would increase the chances of the Federal Reserve moving toward rate hikes, even as U.S. President Donald Trump continues to favour lower interest rates.
A softer inflation result, however, would ease pressure on the Fed and its new Chair, Kevin Warsh, whom Trump appointed with the goal of pursuing lower rates.
Australian data could pressure the RBA
In Australia, investors will watch inflation and employment figures closely. If inflation comes in above expectations while unemployment also rises, the Reserve Bank of Australia could face renewed pressure and a higher risk of a stagflationary backdrop.
By contrast, softer inflation and weaker employment readings would likely reduce pressure on the RBA and support a more cautious policy approach.
Geopolitics moves into the background
Geopolitical developments appeared to take a secondary role in market pricing after the United States waived sanctions on Iran for 60 days. U.S. Vice President JD Vance said the negotiations had laid a “good foundation” for peace.
Iran denied that nuclear talks were taking place. Meanwhile, fighting over Lebanon is coming to an end after Iran had threatened to close the Strait of Hormuz, prompting President Trump to warn that he would resume attacks if Hormuz were shut.
Busy U.S. calendar ahead
The upcoming U.S. economic calendar includes S&P Global Flash PMIs and housing data. Thursday will be especially important, with first-quarter 2026 GDP figures, the Fed’s preferred inflation gauge, the Core PCE Price Index, and Initial Jobless Claims all scheduled for release.
Technical picture remains bearish
From a technical perspective, AUD/USD was trading around 0.6998 on the daily chart, maintaining a bearish short-term bias. The pair remains near a tested pivot linked to the longer-running uptrend from 0.6833, but it continues to trade clearly below the simple moving average triple area around 0.7139.
The move below that moving-average cluster, along with the broader group of former rising trend-line supports now positioned above current price levels, suggests that rallies may struggle to extend. The Relative Strength Index, or RSI 14, has slipped toward the mid-30s, pointing to weak momentum.
Resistance sits near 0.7000 and 0.7140
Immediate resistance is located around the 0.7000 pivot zone. A stronger supply area is seen near the simple moving average cluster around 0.7140, extending into the wider band of previous ascending trend-line structures above the market.
Further losses possible if support breaks
On the downside, the lack of clearly defined structural levels below current prices leaves AUD/USD vulnerable to additional weakness if the 0.7000 area fails to hold. In the current bearish setup, traders may view corrective rebounds toward the 0.7140 region as opportunities to fade the move.
