The AUD/USD has risen near 0.6700 as tensions between the US and EU put pressure on the US Dollar. The Eurozone has opposed the US’s goal to acquire Greenland, with Germany labelling US tariff threats as “unacceptable” and indicating potential counter-measures.
During the European trading session, the Aussie gained strength while the US Dollar underperformed due to ongoing US-EU conflicts. The US Dollar Index (DXY) saw a decline of 0.2%, reaching approximately 99.20.
Tensions Over Greenland
President Trump announced a 10% tariff on several EU countries, warning of further increases unless Greenland is acquired by the US. Greenland’s Prime Minister reiterated resistance to such pressures, while Germany vowed to counter any new tariffs.
The Australian Dollar remained stable, with markets anticipating employment data. Projections suggest 30,000 jobs added in December, alongside an unemployment increase to 4.4%.
The US Dollar is the world’s most traded currency, representing over 88% of global forex turnover. The Federal Reserve influences its value through monetary policy, adjusting interest rates to manage inflation and employment levels. Quantitative easing, by printing more dollars, can weaken the Greenback, while quantitative tightening does the opposite.
With the US Dollar Index near 99.20, we see the market reacting to growing trade disputes between the United States and the European Union. The threats of tariffs over Washington’s interest in Greenland are creating uncertainty and weighing on the Greenback. This environment suggests a cautious approach to dollar-long positions in the immediate term.
For the coming weeks, we should consider positioning for continued Greenback weakness, as geopolitical tensions rarely resolve quickly. Options strategies that benefit from a falling dollar, such as buying puts on dollar-tracking ETFs or calls on major currencies like the Euro or Swiss Franc, could be effective. History shows us these trade disputes, like the ones we saw in 2025, can have a sustained impact on currency valuations.
Increased Market Volatility
The increased rhetoric from both the US and Germany points to higher potential market volatility. Recent data shows currency volatility indexes, like the CBOE EuroCurrency Volatility Index, have already risen over 12% in the last week alone. This makes strategies like long straddles on EUR/USD attractive, as they profit from a large price move in either direction, which is likely if tariffs are enacted or suddenly withdrawn.
Focusing on the AUD/USD, its current strength to near 0.6700 is primarily a result of the broad US dollar weakness. However, we must be mindful of the Australian employment data for December 2025, due this Thursday. A weak report could easily reverse the Aussie’s recent gains, making it a pivotal event for the pair.
To manage this event risk, we could use derivatives to protect current long positions in the AUD/USD. For instance, buying put options with a strike price just below the current market level can provide downside protection against a disappointing jobs number. This allows us to hold onto the position while hedging against the specific risk from the upcoming data release.
The current risk-off mood, which has driven gold to near record highs past $4,700, also favors safe-haven currencies. The data shows the Swiss Franc is the strongest performer against the dollar today, a trend we also saw during the market turbulence of last year. We should explore call options on the Franc to capitalize on any further flight to safety.
