Australian Dollar falls under 0.7000 as Fed adjustments boost USD

The Australian dollar dropped by 0.15% on Monday, while the US dollar retained a 0.24% increase on the US dollar index (DXY), following discussions between the US and Iran in Switzerland. As of now, the AUD/USD is trading below 0.7000 and appears to be gearing up for another downward test.

AUD/USD Decline as Fed’s Hawkish Outlook Surpasses Geopolitical Easing

The Federal Reserve’s recent shift took investors by surprise, leading markets to adjust their expectations, anticipating a more hawkish stance from the bank. Money markets are now forecasting nearly 40 basis points of tightening this year, with major banks like Bank of America and Deutsche Bank projecting three and two rate hikes, respectively, by the Fed in 2026.

This week, the focus will be on US inflation metrics, particularly the Core Personal Consumption Expenditures (PCE) price index. A miss on the higher side may lead to increased chances of a rate hike from the Fed, which could clash with President Trump’s interest in lowering rates. Conversely, a softer report might give the Fed and its newly-installed chair, Kevin Warsh—appointed by Trump with a goal of fostering lower rates—a sigh of relief.

In Australia, both inflation and employment reports are pivotal. If inflation overshoots expectations while unemployment rises, it could create pressure on the Reserve Bank of Australia (RBA) and heighten stagflation risks.

Conversely, weaker inflation and employment numbers would alleviate some of that pressure on the RBA.

Geopolitical issues, however, seem to be somewhat sidelined as the US has suspended sanctions against Iran for a two-month period. Vice President J.D. Vance remarked that negotiations have established a “good foundation” for peace, although Iran denies such talks are occurring. Tensions in Lebanon appear to be settling, as Iran previously warned of closing the strait; meanwhile, Trump mentioned that the US would resume strikes if maritime routes were blocked.

The upcoming economic calendar in the U.S. includes the S&P Global Flash PMI and housing statistics, with a busy Thursday featuring first-quarter 2026 GDP data, Fed-recommended inflation measurements, the core PCE index, and new jobless claims.

AUD/USD Price Outlook: Technical Analysis

On the daily chart, AUD/USD is currently at 0.6998, clearly below the simple moving average around 0.7139, indicating a bearish short-term trend. The pair is hovering near a key pivot point of the long-term uptrend from 0.6833. The downward position under this moving average and near the former uptrend line suggests limited upward potential, a sentiment bolstered by the Relative Strength Index (14) nearing the mid-30s, indicating weak momentum.

On the upside, immediate resistance appears around the pivot near 0.7000, while supply strength is observed around the 0.7140 moving average cluster, extending into the broader previous uptrend zone above. On the downside, the lack of distinct price structure levels raises the risk of further declines if the 0.7000 threshold is breached. Traders might see a corrective pullback toward the 0.7140 area as a chance to enforce bearish strategies as the overall sentiment remains negative.