AUD\/USD extended gains for a second session after a brief dip to around 0.6910 in Asia, supported by renewed US Dollar selling. The pair traded near 0.6930 after the RatingDog China Services PMI, sitting just under a one-and-a-half-week high set on Wednesday. China\u2019s services gauge eased to 54.1 in June from 54.4, yet it still implied ongoing expansion and provided a tailwind for the Australia-linked currency. Meanwhile, the Dollar hovered near a two-week low as expectations for further US Federal Reserve tightening cooled.<\/p>\n
US labour data reinforced that shift. Nonfarm Payrolls showed 57K jobs added in June versus 110K expected, while May was revised down to 129K from 172K; the unemployment rate nonetheless edged lower to 4.2%. Market pricing moved from one to two Fed rate rises in 2026 to between zero and one. Geopolitical risk and thin US holiday liquidity tempered follow-through, with reports of US concerns over threats to Iran\u2019s negotiators and Tehran warning of a \u201cdecisive and swift response\u201d to any US action in the Strait of Hormuz.<\/p>\n
Based on the developing situation, we see the recent strength in the AUD\/USD as an opportunity. The US Dollar is weakening because market expectations for a Federal Reserve rate hike have collapsed following the weak June jobs report. The CME FedWatch Tool now shows the probability of a rate hike by September has fallen to below 35%, a sharp drop from over 70% just last month.<\/p>\n
This shift is supported by broader signs of a cooling US economy, which we believe will continue to weigh on the dollar. For instance, weekly jobless claims have recently trended upwards, hitting 245,000 last week, reinforcing the narrative of a softening labor market. In contrast, recent data showing China\u2019s industrial production beat expectations provides an additional tailwind for the Australian dollar.<\/p>\n
However, we must remain cautious due to significant geopolitical risks that could trigger a flight to safety and boost the US dollar. Tensions in the Strait of Hormuz have already pushed Brent crude oil prices above $88 a barrel, and any escalation could quickly reverse the current trend in currency markets. This uncertainty suggests the upside for AUD\/USD may be capped near the 0.7050 resistance level, a key technical point from earlier this year.<\/p>\n
Given these conflicting signals, we are looking at strategies that offer upside exposure with limited risk. Buying AUD\/USD call options with a strike price around 0.7000 for late July or August expiration appears prudent. This allows us to profit if the pair continues its recovery while defining our maximum loss to the premium paid should geopolitical events cause a reversal.<\/p>\n\n\n\n