The Australian dollar rose for a third session on Monday, up 0.25%, as markets pared expectations for US Federal Reserve tightening after a softer US jobs report, which weighed on the US dollar. AUD/USD climbed to 0.6950 after rebounding from 0.6921. In US data, the ISM Services PMI for June eased to 54 from 54.5, matching forecasts; within the survey, the Prices Index fell to 67.7 from 71.3, while the Employment Index rose to 51.2 from 47.9. Attention now turns to the Fed’s latest meeting minutes—its first under Chair Kevin Warsh—and Initial Jobless Claims for the week ending 4 July.
In Australia, RBA minutes said a pause was needed to assess earlier rate rises, while keeping the option of further hikes to meet inflation and employment goals; the bank reiterated its commitment to price stability. The pair traded around 0.6955, below the 50-, 100- and 200-day SMA cluster near 0.7091, with RSI (14) about 43. Resistance sits near 0.7002, then 0.7086–0.7111. Separately, iron ore—Australia’s largest export—was put at $118bn a year in 2021, and the RBA’s inflation target band was cited at 2–3%.
Interest Rate Differentials and Technical Outlook
We see the Australian dollar’s recent rally to 0.6950 as a temporary reaction to a softer US jobs report. The underlying interest rate differential, with the Reserve Bank of Australia’s rate at 4.35% and the Federal Reserve’s at 5.50%, still fundamentally favors holding US dollars. This difference continues to create a headwind for any sustained AUD/USD strength.
Despite the bounce, the pair remains below a heavy wall of technical resistance near the 0.7100 level, an area crowded with key moving averages. We view this current strength as a potential selling opportunity rather than the beginning of a new uptrend. The underlying bearish market structure has not changed.
For the coming weeks, we are considering derivative strategies that would benefit if the Australian dollar fails to break higher. This could involve buying put options with strike prices below the 0.6900 level to bet on a decline. Alternatively, selling bear call spreads with a ceiling around that 0.7100 resistance zone could be a viable way to collect premium.
Fundamental Drivers and Event Risks
Our view is reinforced by weakening fundamentals for Australia’s key exports. We note that China’s latest manufacturing PMI recently dipped back into contraction territory at 49.8, signaling lower demand, while iron ore prices have also slipped below $105 per tonne. These factors limit the Australian dollar’s potential upside.
We will watch the upcoming Federal Reserve minutes and US inflation data very closely. The most recent US Core PCE inflation reading of 2.8% is still significantly above the Fed’s 2% target, suggesting policymakers have little room to soften their stance. Any confirmation of their commitment to fighting inflation would likely strengthen the US dollar and push this pair lower.
