AUD/USD was trading near 0.6990 on Tuesday, down 0.39% on the day, after an early rise towards 0.7030 faded and the pair slid to the 0.6980 area. The Australian dollar initially drew support from the Reserve Bank of Australia lifting the Cash Rate by 25 bps to 4.60%, the highest in about 15 years, in a unanimous decision. Policymakers repeated that inflation remains too high and left open the possibility of further increases, but markets then focused on guidance around whether additional tightening is needed.
In the one-hour view, the pair was at 0.6992, staying below the 100-period SMA at 0.7021 and the 200-period SMA at 0.7069, while the RSI near 42 pointed to mildly negative momentum. Resistance is seen at 0.7005, then 0.7021 and 0.7045, with 0.7069 followed by 0.7075, 0.7105 and 0.7140. Support sits at 0.6980. The US dollar has been underpinned by elevated US Treasury yields and expectations of further Federal Reserve tightening, with the PCE Price Index and NFP data in focus.
Bearish Option Strategies For AUD/USD
We suggest that derivative traders look to capitalize on the AUD/USD’s failure to sustain its rally above 0.7000 by targeting short-term bearish strategies. Since the pair has fallen back to the 0.6990 level, buying short-dated put options with a strike price near 0.6950 could be a highly effective way to play the immediate downside. This approach limits risk while positioning us to profit if the currency pair breaks below the strong support floor at 0.6980.
Our technical outlook shows strong resistance overhead, with the 100-period simple moving average sitting at 0.7021 and the 200-period SMA capped at 0.7069. Derivative traders can also consider selling out-of-the-money call options or establishing bear call spreads above the 0.7075 supply zone. By doing this, we can collect premium while exploiting the currency’s lack of upward momentum and its weak Relative Strength Index of 42.
Macro Factors And Market Implications
We must also watch the US bond market, where the 10-year Treasury yield has recently hovered around the 3.8% mark, continuing to draw capital toward the US dollar. With the latest US Core PCE inflation print remaining sticky at 2.7% year-over-year, the Federal Reserve has less pressure to cut rates quickly. This yield advantage keeps the greenback strong and makes it difficult for the Australian dollar to hold onto its post-hike gains.
Historically, when the RBA raises rates to combat inflation but expresses caution over household spending, the Australian dollar often experiences a “buy the rumor, sell the fact” reaction. With Australian retail sales growth sluggish at just 0.2% recently, we believe the RBA’s hike to 4.60% will likely be its last for a while. This limits the upside for AUD, justifying our preference for strategies that profit from a range-bound or declining exchange rate.
In the coming weeks, we recommend keeping a close eye on the upcoming US Nonfarm Payrolls and PCE data releases to adjust our option positions. A stronger-than-expected jobs report, following last month’s solid 142,000 gain, would likely push the AUD/USD further below the 0.6980 support level. Traders should be ready to roll their puts to lower strike prices if this macroeconomic data continues to favor the US dollar.
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