In the past two weeks, the stagflation risk narrative has gained traction due to higher oil prices, as global energy flow disruptions persist due to the US-Iran war, which shows no clear signs of de-escalation, damaging several Gulf states’ oil production and refinery assets.
Hence, the Australian dollar is now more sensitive to a significant deterioration in risk appetite triggered by heightened stagflation fear that overshadowed the “commodity currency” element.
Since mid-March 2026, the movement of the AUD/USD has been closely aligned with global equities.
The 20-day rolling correlation coefficient of the iShares MSCI All Country World Index (ACWI) ETF and AUD/USD has increased to 0.62 at this time of writing from 0.12 printed on 16 March 2026 (see Fig. 1).
Given that the ACWI ETF has just broken below its key 200-day moving average last week, which suggests more potential downside in the near to medium-term for global equities, in turn, it may trigger a further negative loop into the AUD/USD.
In today’s early Asian session, the Wall Street Journal has reported that US President Trump is willing to wind down the military campaign against Iran even if the Strait of Hormuz remains largely closed, signalling a potential shift in strategic priorities.
Overnight risk-off sentiment has stalled on this “conflicting” news flow, where the S&P 500 and Nasdaq 100 E-mini futures have erased earlier losses of around -0.5% at the opening hours of today’s Asian session to trade with an intraday of around 0.7% at this time of writing.
However, the AUD/USD remains muted and traded almost unchanged at the 0.6850 level.
Let’s now focus on the short-term trajectory (1 to 3 days) of the AUD/USD from a technical analysis perspective.
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