AUD/USD traded in a tight range around 0.7200 at the start of the week, staying near Friday’s high and its strongest level since mid-May. The Australian Dollar drew support from markets pricing a Reserve Bank of Australia rate rise in September, after stronger-than-expected growth and persistent domestic inflation. The US Dollar was less able to extend gains linked to the Nonfarm Payrolls report as attention shifted to US inflation data due later this week, although US-Iran tensions provided some support and limited AUD/USD upside.
Technically, the pair has held above the 78.6% Fibonacci retracement of the May–June fall at 0.7186, after rebounding from near the 200-day Simple Moving Average at 0.6989. Momentum gauges remain constructive, with the Relative Strength Index around 66 and a mildly positive Moving Average Convergence Divergence histogram. Resistance is at the multi-year peak of 0.7272; a daily close above that level would leave scope for further gains. If 0.7186 gives way, support levels sit at 0.7118, near 0.7070, then 0.7023.
Fundamental Factors Supporting AUD/USD Upside
As we observe the AUD/USD pair consolidating around the crucial 0.7200 level, we recommend that derivative traders position themselves for continued upward momentum in the coming weeks. Our outlook is heavily supported by the stark policy divergence between the Reserve Bank of Australia (RBA) and the Federal Reserve. With Australia’s recent CPI inflation remaining stubborn at 3.8% and the RBA keeping its cash rate restrictive at 4.35%, the yield advantage is increasingly shifting in favor of the Australian Dollar.
Trading Strategies and Technical Insights
To capitalize on this bullish setup, option traders should consider buying near-the-money call options or utilizing bull call spreads with a target strike near the multi-year peak of 0.7272. This strategy limits downside risk while allowing us to capture the upside as spot prices hold firmly above the 78.6% Fibonacci retracement level of 0.7186. Historically, when the Relative Strength Index (RSI) hovers near the 66 mark alongside a positive MACD, it signals strong buying pressure that often precedes a breakout.
For futures traders, we suggest establishing long positions on slight pullbacks toward the 0.7180 support zone, keeping tight stop-loss orders just below the 61.8% retracement level at 0.7118. While geopolitical tensions in the Middle East continue to provide temporary safe-haven support to the US Dollar, the underlying macroeconomic fundamentals favor the Aussie. We expect this technical consolidation phase to resolve to the upside, especially if upcoming US inflation data shows further signs of cooling.
