AUD/USD was little changed and held around 0.7000 for a fourth straight session, with rallies from the 0.6900 area running into the 50-day EMA just above that level. The daily Stochastic Relative Strength Index moved through the mid-70s, but price action failed to follow through. Domestic pricing for further tightening softened after inflation expectations slipped to 4.7% in July from 5.5% in June, following the Reserve Bank of Australia’s decision to keep the cash rate at 4.35% in June after three hikes this year. Headline inflation eased to 4.0% in May while the trimmed mean rose to 3.6%, leaving the late-July CPI as the key input for the 11 August meeting, even as futures lean towards a year-end rate closer to 4.50%.
External drivers remained in focus, with the People’s Bank of China due to set policy at 01:15 GMT on Monday with its benchmark rate at 3%. In the US, jobless claims fell to 208K and the Philadelphia Fed index came in at 41.4 against 13 expected, supporting rate-hike speculation for 28–29 July. Australia’s next focal point is the 23 July labour report at 01:30 GMT; May added 40.3K jobs with unemployment at 4.4%, skewed towards 35.2K part-time versus 5.2K full-time. Preliminary PMIs follow at 23:00 GMT, after prior readings of 51.5 for manufacturing and 50.5 for services, alongside Michigan sentiment at 14:00 GMT and US PMIs on 24 July. Technical levels cited included resistance at 0.7000, then 0.7050 and near 0.7100, with support at 0.6950, 0.6900, and just below 0.6850.
Australian Dollar Range-Bound as Domestic Momentum Stalls
We see the Australian Dollar stuck in a tight range, flatlining right at the key 0.7000 level for a fourth straight day as the 50-day Exponential Moving Average caps gains. Because the daily Stochastic RSI is climbing without any actual upward price movement, momentum is currently being exhausted rather than built. Derivative traders should look to sell rallies near 0.7000, targeting a pullback to the 0.6900 support zone.
Our bearish outlook is supported by cooling domestic inflation expectations, which recently fell to 4.7%, giving the Reserve Bank of Australia plenty of room to keep interest rates steady at 4.35%. With the Westpac Consumer Sentiment index remaining near historic lows at 82.4 points, the domestic demand for further rate hikes is quickly evaporating. We expect this lack of hawkish momentum to limit any upside for the Aussie ahead of the June-quarter CPI release.
External Risks and Trading Strategies Ahead of Key Data Releases
We must also watch Beijing closely, as the People’s Bank of China’s upcoming policy decision on Monday, July 20, acts as a major external driver. With global iron ore prices hovering around $105 per tonne due to soft Chinese demand, a lack of aggressive stimulus from the PBOC will likely drag the Aussie down. We recommend using short-dated put options to hedge against disappointing news from Australia’s largest export market.
On the other side of the pair, strong US economic data, including resilient jobless claims and a hot Philadelphia Fed manufacturing index, keep the Federal Reserve’s hawkish stance alive. This solid US economic backdrop maintains the greenback’s strength and squeezes the AUD/USD yield differential. We advise maintaining a downward bias on the pair as safe-haven bids continue to favor the US dollar amid ongoing Middle East tensions.
The upcoming Australian labor force report on Thursday, July 23, is the critical catalyst that we expect will finally break this tight range. Given that previous employment gains were heavily dominated by part-time positions, another weak composition print will likely send the currency pair sliding below 0.6900. Traders should position for asymmetric downside risk, buying puts to capitalize on a potential technical breakdown.
