The Australian dollar rose against the US dollar on Monday, with AUD/USD up more than 0.35% and back above 0.7000 after comments from Iran’s foreign minister raised the prospect of de-escalation and helped push oil off one-month highs. The US continued strikes on Iran for a ninth straight day following the killing of US soldiers in weekend attacks attributed to Iran, but the currency market’s risk tone improved as mediation efforts to resume talks were referenced. The US dollar remained under pressure after June CPI and subsequent PPI data pointed to faster-than-expected disinflation, tempering expectations of a Federal Reserve rate rise in July.
In Australia, the Reserve Bank of Australia paused in June after three increases earlier in the year and signalled a wait-and-see approach, though renewed hostilities and firmer energy costs could revive the case for a fourth hike in 2024. The RBA targets inflation of 2–3% and can also adjust credit conditions via quantitative easing or tightening. Beyond rates, the AUD is driven by China’s economic momentum and commodity prices such as iron ore, Australia’s largest export at $118 billion a year based on 2021 data, alongside shifts in the trade balance and broader risk appetite.
Near-Term Bullish Case And Derivatives Playbook
With the AUD/USD pair breaking back above the key 0.7000 level and flashing a bullish engulfing pattern, we see a prime entry point for near-term derivative buyers. This sudden upward momentum is heavily supported by easing Middle East tensions and falling crude oil prices, which have slipped from their recent one-month highs. We suggest traders prioritize short-dated call options or long futures contracts to ride this immediate wave of risk-on sentiment.
Our view is further supported by weak US inflation data, with recent CPI numbers cooling faster than expected and dragging the US Dollar Index down toward the 101.00 mark. Historically, when the Federal Reserve is expected to pause while other central banks face persistent domestic inflation pressure, the Aussie dollar outperforms. Derivative traders should capitalize on this divergence by shorting US Dollar futures against the AUD.
Event-Driven Volatility And Commodity Support
Looking ahead to this Thursday, we must prepare for heightened volatility as Australia releases its latest employment and business activity data. Stronger-than-expected jobs numbers could force the Reserve Bank of Australia to abandon its June pause and deliver a fourth rate hike this year. To trade this high-impact event safely, we recommend using options straddles to capture a sharp breakout in either direction.
Finally, we should keep a close eye on iron ore prices, which have recently stabilized around $110 per ton due to steady demand from Chinese steel mills. Since Australia is a major commodity exporter, this firm pricing directly boosts the country’s trade balance and strengthens the AUD. We advise building longer-term bull call spreads to leverage this structural commodity support over the coming weeks.
