AUD/USD bullish positioning faces a geopolitical stress test as Middle East tensions, RBA policy risks and NFP loom.
By : Matt Simpson, Market Analyst
Markets and risk appetite are likely to remain on edge following a major weekend escalation in the Middle East. The U.S. and Israel launched coordinated strikes against Iran, reportedly killing its Supreme Leader and several senior officials — a development that materially raises uncertainty around regional stability, oil markets and broader risk sentiment. Investors will be closely monitoring potential disruptions to energy supply, shipping routes and the risk of further retaliation as the situation remains fluid.
View related analysis:
With questions still swirling around Iran’s leadership succession, the scope for additional military action and possible spill-over effects, FX markets — particularly AUD/USD — could see volatile price action at the open as risk assets and commodity-linked currencies adjust to fresh headlines.
That said, if Bitcoin has acted as the weekend’s real-time proxy for risk sentiment, price action initially pointed to a more constructive interpretation following its rally. Rather than outright panic, BTC’s advance suggested traders were tentatively pricing in containment rather than immediate escalation. However, that narrative may be tested if military operations continue or broaden in the days ahead.
Click the website link below to Check Out Our FREE "How to Trade Gold" Guide
https://www.forex.com/en-us/whitepapers/
https://preview.redd.it/unx1fy5x9img1.png?width=1420&format=png&auto=webp&s=4a271aec1573b3471ba09c52724c82b54cd6215f
Australian Dollar Performance
It has been a solid start to the year for the Australian dollar. However, with multiple AUD crosses flashing potential reversal signals ahead of what could be a risk-off week, bulls have been warned.
- AUD/USD handed back most of the week’s gains on Friday, forming a bearish inside week.
- AUD/JPY printed a small bearish inside week, suggesting its strong rally is beginning to lose momentum.
- AUD/NZD stalled around 1.19 and formed a small bearish outside week (hammer).
- AUD/CAD formed a bearish engulfing week.
- GBP/AUD snapped a nine-week losing streak with a bullish inside week.
- EUR/AUD ended a ten-week losing streak, hinting at a potential swing low.
https://preview.redd.it/k1z4hzey9img1.png?width=801&format=png&auto=webp&s=b135df0f20aefdaa1daa6f1d6aafc217068f003e
Chart prepared by Matt Simpson - Source: LSEG
Australia This Week: Economic Data and Events for AUD/USD Traders
RBA Governor Bullock in Focus at AFR Business Summit
All eyes turn to Governor Michele Bullock’s speech at the AFR Business Summit on Tuesday, with traders alert for any shift in tone on policy. Sticky inflation and a resilient labour market have seen markets fully price in two rate hikes by September.
Expect a measured message: inflation remains above target, the Board is data-dependent, and policy will stay restrictive until there is clear evidence that inflation is returning sustainably to target. Given the backdrop, it seems unlikely she will meaningfully challenge current market pricing.
Click the website link below to Check Out Our FREE "How to Trade AUD/USD" Guide
https://www.forex.com/en-us/whitepapers/
https://preview.redd.it/l01pd591aimg1.png?width=1420&format=png&auto=webp&s=b7ebdeb6603a48e915ce4b50babf9b2515c0bc93
Australian PMIs and GDP: Strong Data Could Accelerate RBA Hike Timing
Final PMIs are due, although I doubt we’ll see surprises. While services PMI dipped slightly in the preliminary read, S&P Global’s surveys continue to indicate that Australia’s economy remains in expansion. That likely sets the tone for Wednesday’s GDP report.
I’m not expecting downside shocks. The greater risk for policymakers is that growth prints hot, adding pressure to bring forward the next hike.
RBA cash rate futures have fully priced in another 25bp hike by August and imply around an 88% chance of a move by June. The odds of a March hike remain low at 9%, rising to 70% by May. Incoming data will determine whether the RBA moves in March or May, should the economy continue to surprise on the upside.
US Data Deluge Ahead of Nonfarm Payrolls
The US calendar is packed, with flash PMIs from S&P Global, ISM manufacturing and services reports, ADP employment and retail sales all building towards Friday’s nonfarm payrolls release.
However, unless we see a material deterioration in the US economy, these releases are unlikely to be the dominant driver of US dollar sentiment — particularly with US–Iran tensions overshadowing macro themes.
Fed funds futures imply just a % chance of a July cut. Even that may prove optimistic for the doves, with some questioning whether there is genuine appetite for the Fed to ease at all this year.
AUD/USD Futures Positioning | COT Report
- Large speculators are now at their most bullish level on AUD futures since October 2017.
- Net-long exposure has risen for five consecutive weeks after flipping from net-short.
- Asset managers switched to net-long exposure two weeks ago and now sit at their most bullish level since October 2020. Positioning is supportive — but also increasingly stretched.
https://preview.redd.it/fxdm48y2aimg1.png?width=1346&format=png&auto=webp&s=ee84b51b3e9d44f5c65f6a8c2f7995b7d6da39c1
Source: CFTC, CME, LSEG
AUD/USD Correlations
- The Australian dollar has largely tracked local markets in recent sessions, showing strong correlations with the ASX 200 and the New Zealand dollar.
- Its 20-day correlation with the US Dollar Index is effectively zero, with only a modest 10-day inverse correlation of -0.6. In other words, AUD/USD has not been trading as a classic USD proxy.
- That dynamic could shift quickly if geopolitical risk intensifies. Whether traditional correlations reassert themselves may depend less on data — and more on headlines.
https://preview.redd.it/mphxqyg4aimg1.png?width=1278&format=png&auto=webp&s=2815ebaba05ee87c821c4b08b4149697e69ed5b9
Chart prepared by Matt Simpson - Source: LSEG
AUD/USD Technical Analysis: Australian Dollar vs US Dollar
Last week’s bull flag breakout proved short-lived, and the potential reversal I previously warned about is beginning to take shape. The small bearish week has snapped a six-week winning streak for AUD/USD.
Implied volatility (lower left chart) is rising — although it has eased slightly from recent highs. Notably, risk reversals are pointing sharply lower while AUD/USD prices remain elevated.
In particular, the 1-week 10-delta risk reversal has fallen to its most negative level since October, signalling that downside tail risk has increased as demand for puts rises relative to calls.
A break below 0.70 is now on the radar, bringing 0.69 into focus for bears. A sustained move beneath that level would likely signal a broader bout of risk-off sentiment for the Australian dollar — and risk assets more broadly.
https://preview.redd.it/bgl13zo5aimg1.png?width=1233&format=png&auto=webp&s=859e330994348ab7c8f25d378c13bf50a141fcf7
Source: ICE, TradingView
View the full economic calendar
-- Written by Matt Simpson
Follow Matt on Twitter u/cLeverEdge
https://www.forex.com/en-us/news-and-analysis/australian-dollar-outlook-aud-usd-bullish-bets-face-geopolitical-test/
The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.
