AUD/USD slipped in Asian trading on Thursday after rising more than 0.5% the prior session, hovering around 0.7120 as the Australian dollar weakened following a soft labour report. Australia’s unemployment rate ticked up to 4.5% in July versus forecasts of 4.4%, while employment fell by 15.8K after June’s 80.2K gain and against expectations for a 15.0K increase. Market pricing implied just 12 bps of RBA hikes over a three-month view. Broader pressure also stems from weaker Chinese demand for Australian commodities and a softer domestic backdrop.
The downside was tempered by a softer US dollar as Fed expectations eased. The Fed’s July minutes showed officials would consider raising rates if inflation failed to cool, after holding the policy rate at 3.5%–3.75%; inflation remains above the 2% target, though monthly readings suggest more modest pressures. CME FedWatch pricing puts the probability of a hike at the next meeting at 32.7%, down from 47% a month earlier. On charts, AUD/USD traded near 0.7110, above the nine-period EMA at 0.7087 and the 50-day EMA at 0.7034, with 14-day RSI at 63.2; resistance sits at 0.7200, while the FXS Fed Sentiment Index remains below earlier peaks.
Trading Strategies and Market Structure
We suggest that derivative traders look for buying opportunities on minor pullbacks as the AUD/USD pair maintains a constructive bullish structure despite recent weak Australian jobs data. Buying call options or setting long limit orders near the nine-period Exponential Moving Average of 0.7087 allows us to capitalize on the broader upward trend. Historically, when this currency pair holds above its 50-day moving average, short-term dips are quickly bought up by institutional players looking for value.
Outlook, Volatility, and Risk Management
Because both the Australian Dollar and the US Dollar face domestic headwinds, we anticipate a period of consolidation below the 0.7200 psychological ceiling. Traders can take advantage of this environment by deploying short strangle or iron condor strategies to collect option premium. This range-bound view is supported by recent foreign exchange volatility metrics, which show AUD/USD implied volatility steadying around its historical baseline of 8.5% during late August trading.
We must closely watch the shifting Federal Reserve rate hike odds, which have recently dropped to just 32.7% according to the CME FedWatch Tool. Any further signs of cooling US inflation will likely weaken the greenback and propel the AUD/USD pair toward our near-term target of 0.7200. To manage downside risks from weak Chinese commodity demand, we recommend placing protective stop-losses or buying defensive puts just under the technical floor at 0.7034.
