AUD/USD Pressure Builds on Soft Inflation, Fed Decision in Focus
AUD/USD was down 0.4% near 0.6945 on Wednesday, extending recent losses after Australia’s inflation figures came in softer than forecast. The Consumer Price Index fell 0.1% month on month in June versus expectations for a 0.2% rise, and annual CPI eased to 3.8% from 4.0% against a 4.0% forecast. The Trimmed Mean CPI, the RBA’s preferred underlying gauge, rose 0.3% MoM versus 0.4% previously and below expectations, while the annual underlying rate held at 3.6%.
Focus shifts to the Fed decision later Wednesday. Policymakers are expected to keep the fed funds rate unchanged in a 3.50%–3.75% range, although markets price roughly a one-in-three chance of a 25-basis-point increase. Separately, renewed US-Iran attacks in the Gulf have helped Crude Oil rebound and raised energy inflation concerns, supporting the Greenback ahead of the announcement.
Technically, the pair traded at 0.6947 on the four-hour chart, sitting below the 20-period and 100-period SMAs clustered just under 0.6980. Resistance sits at 0.6951 and 0.6960, with RSI in the mid-30s; support is seen at 0.6939 and then 0.6935. A break higher would need to clear the 100-period SMA around 0.6972 and the 20-period SMA near 0.6977.
RBA Outlook and Geopolitical Risks
We are seeing the Australian Dollar face heavy downward pressure after Australia’s annual inflation rate cooled to 3.8%, down from the previous 4.0%. This softer inflation print makes an imminent rate hike by the Reserve Bank of Australia highly unlikely, removing a key support pillar for the currency. Consequently, we advise derivative traders to position for continued AUD/USD weakness over the next few weeks.
Geopolitical friction in the Gulf has pushed crude oil prices higher, which historically damages global risk appetite and dampens demand for the Aussie. Historically, during intense Middle East geopolitical spikes like those in 2019 and 2024, safe-haven flows boosted the US Dollar Index by 1.5% to 3% in the weeks following the shocks. We can capture this safe-haven shift by buying AUD/USD put options with an expiration date of late August.
Fed Risk and Technical Considerations
We must also watch the Federal Reserve today, which is highly expected to keep rates at 3.50% to 3.75% despite a 33% implied probability of a surprise hike. Any hawkish comments from Fed Chair Kevin Warsh about sticky global inflation will likely send the US Dollar even higher. To manage this event risk, we recommend using bear put spreads to limit premium costs while targeting a drop toward the 0.6900 level.
From a technical view, AUD/USD remains capped below the key 20-period and 100-period moving averages near 0.6980, while the Relative Strength Index sits weak in the mid-30s. We should look to short futures or buy puts on any brief relief rallies that approach this 0.6980 resistance zone. A clean break below the immediate support floor at 0.6935 will likely trigger a rapid slide to new multi-month lows.
