AUD/USD rose for a third straight session, trading near 0.7110 in Asian hours, as the US Dollar stayed soft with expectations for further Federal Reserve tightening easing. After a surprise fall in July US Nonfarm Payrolls and last week’s subdued consumer price inflation, the implied probability of a rate rise at the next meeting slipped to 35% from 47% a month earlier, according to the CME FedWatch Tool. Separately, US–Iran tensions resurfaced after Washington signalled no intention to renew an expiring agreement, while Tehran said a deal remains out of reach and called for the lifting of a naval blockade.
Attention turns to Australian releases including the Westpac Consumer Confidence index for August and the second-quarter Wage Price Index. Wages are forecast to rise 0.8% quarter-on-quarter, while year-on-year growth is seen at 3.2% versus 3.3% in Q1. RBA cash rate futures indicate 60% odds of one more 25 bps increase by year-end to 4.60%. In technical trade, spot remains above the nine-period EMA at 0.7074 and the 50-period EMA at 0.7028, with the 14-day RSI at 65.84.
Momentum and Trading Strategy
We see the AUD/USD pair building strong upward momentum, currently trading around 0.7110 as the US Dollar remains under pressure. Given that the 14-day Relative Strength Index (RSI) is hovering near overbought territory at 65.84, we recommend derivative traders avoid chasing the rally at current spot levels. Instead, we should look to establish long positions on short-term pullbacks, targeting the immediate support zone near the nine-period exponential moving average (EMA) at 0.7074.
To capitalize on this trend while mitigating the risk of short-term consolidation, we favor utilizing bull put spreads. By selling put options with a strike price around the strong 50-period EMA of 0.7028 and buying lower-strike protective puts, we can generate premium income while keeping our risk strictly defined. This strategy is supported by Australia’s resilient labor market, where the unemployment rate has recently hovered near a stable 4.1%, ensuring that the domestic economy remains robust enough to prevent any sudden RBA rate cuts.
Market Drivers and Long-Bias Rationale
We must also account for the shifting interest rate environment, as the CME FedWatch Tool shows expectations for a September US rate hike have plunged to just 35%. This fading hawkishness, coupled with geopolitical friction over Middle Eastern naval waterways, points to sustained downward pressure on the greenback. Consequently, we suggest maintaining a long-bias on the Australian Dollar by buying short-dated call options on any dips over the coming weeks.
