UOB said AUD/USD has paused following last week’s surge, after the pair touched 0.6943 on Thursday. It then moved within 0.6911 to 0.6949 and finished at 0.6939, up 0.23%. While trading has been subdued, UOB sees a tentative increase in downside momentum, though any pullback is expected to be limited to a test of 0.6910. Nearby resistance is flagged at 0.6945 and then 0.6955.
For the next one to three weeks, UOB maintains a neutral stance and continues to look for consolidation within 0.6870 and 0.6980; the prior guidance was issued on 1 July with spot at 0.6915. Over a one- to three-month horizon, the bank’s broader view remains negative, with attention on support at 0.6835 and then 0.6707.
Strategies for a Range-Bound AUD/USD Market
Given the expected consolidation, we believe AUD/USD is likely to trade within a range of 0.6870 and 0.6980 for the next few weeks. This suggests strategies that profit from low volatility and time decay will be most effective. Options traders might consider selling premium through strategies like an iron condor, with strikes set outside this anticipated range.
Drivers Behind the Lack of Direction
This view is supported by conflicting signals from central banks. Reserve Bank of Australia Governor Michele Bullock recently signaled a ‘wait-and-see’ approach, as recent data showed quarterly inflation easing to 3.4% while core inflation remains sticky. This indecisiveness from the RBA removes a strong directional catalyst for the Aussie dollar.
Meanwhile, last Friday’s U.S. Non-Farm Payrolls report showed job growth moderating to a respectable 195,000, slightly below consensus. This has tempered expectations for the next Federal Reserve move, anchoring the US dollar for now. The mix of a patient RBA and a steadying US economy strengthens the case for range-bound trading.
Implied volatility for one-month AUD/USD options has fallen to near 8.5%, reflecting the market’s expectation of a quiet period ahead. Historically, the July-August period often sees reduced volatility as trading volumes thin for the Northern Hemisphere summer. We plan to use this environment to our advantage by selling options premium rather than taking a strong directional bet.
