AUD/USD has pushed to two-month highs above 0.7100, supported by softer US Dollar sentiment tied to reduced expectations of a Federal Reserve hike next month. Attention turns to Australia’s jobs report and flash PMIs, while positioning data show bearish futures interest rebuilding: CFTC net shorts widened to about 39.2K contracts, as the weekly change fell to -6.0K after the prior week’s near 6.8K improvement. Open interest rose to 267.2K from 240.5K, speculative exposure slipped to -14.7% from -13.8%, the four-week change was around -8.5K, and percentiles eased to 68.5 and 80.4.
Domestic data remain mixed but firm. July PMI final prints showed Manufacturing at 52.0 (from 51.5) and Services at 53.6 (from 50.5), while June’s trade balance swung to an A$1.929bn surplus from May’s A$2.367bn deficit. GDP rose 0.3% QoQ in Q1 2026 (from 0.9%) and 2.5% YoY; unemployment held 4.4% in June and employment rose 76.3K (from a revised 44K). China’s Q2 growth was 4.3% YoY, with July retail sales at 0.6% and industrial production at 4.5%; June’s trade surplus widened to $125.62bn from $105.4bn, while CPI rose 0.5% YoY (from 1.0%), fell -0.1% m/m, and PPI was 3.5% (from 4.1%). The PBoC is expected to keep LPR at 3.00% and 3.50%; the RBA left OCR unchanged, forecasting trimmed mean 3.3% in Q4 2026, headline inflation 3.6% in Q4 2026 then 2.6% in Q4 2027 and 2.4% in Q4 2028, unemployment 4.5% rising to 4.7% and 4.8%, and GDP 1.4%, 1.6% and 1.8%. Technically, the pair was at 0.7109 with RSI 65.6 and ADX 11.9, support at 0.7079 then 0.7061, 0.7003 and 0.6940, and resistance at 0.7283 then 0.7661; the 200-day SMA is cited near 0.6930 and 0.6940, with the 55-day around 0.7000 and 0.7003.
—Breakout Potential and Market Dynamics
We should prepare for a potential breakout as the Australian Dollar pushes past the key 0.7100 resistance level against the US Dollar. Despite some underlying bearish sentiment in the futures market, the currency’s momentum is building on the back of a hawkish Reserve Bank of Australia and a weakening Greenback. To capitalize on this, we can look at call options targeting the 0.7200 level, especially if upcoming domestic data remains supportive.
Recent CFTC data reveals that net short positions on the Aussie have widened to around 39.2k contracts, while open interest rose to 267.2k contracts. This heavy short positioning actually creates a prime environment for a short squeeze if positive economic surprises occur. Historically, when net short exposure reaches these stretched levels, any hawkish trigger can spark rapid, aggressive upward buying as bears scramble to cover their positions.
—Strategic Considerations and Risk Management
We must closely monitor this week’s Australian jobs report and flash PMIs to gauge the true strength of the domestic economy. With the local unemployment rate holding steady at 4.4% and Q1 GDP growing at 0.3%, any signs of a tightening labor market will likely force the RBA to keep interest rates elevated for longer. Stronger-than-expected employment numbers will provide the fundamental justification needed to sustain the AUD/USD rally above the 200-day moving average of 0.6940.
For derivative strategies, we should consider buying AUD/USD risk reversals to exploit the volatility skew, which currently favors downside protection but might rapidly shift as the currency gains traction. Alternatively, setting up bull call spreads expiring after the September 29 RBA meeting allows us to limit our risk while participating in the potential climb toward 0.7280. If global sentiment sours or Chinese economic data underperforms, we can quickly pivot by buying short-term put options to hedge our exposure near the 0.7000 support floor.
