The Australian dollar rose 0.13% to about 0.7217 versus the US dollar in European trade on Monday, its highest level in more than three months. The move followed firmer Australian growth data, with Q2 GDP at 0.4% quarter-on-quarter and 2.1% year-on-year, reinforcing expectations of an RBA rate rise later this month. Attention is turning to comments from RBA deputy governor Andrew Hauser on Tuesday, after market pricing shifted towards a tighter stance and the currency held around the 72 US cent area.
The US dollar, meanwhile, struggled for traction even after a stronger-than-forecast August nonfarm payrolls report lifted expectations of further tightening. Fed funds futures put the probability of a 25 basis-point hike on 16 September at 62%, up from 51% before the jobs data and following Fed governor Christopher Waller’s earlier dovish remarks, while this week’s PPI and CPI releases are in focus ahead of the September FOMC meeting. Technically, AUD/USD sits above its 100-day SMA of 0.7079, with an RSI near 68 and the next upside marker around 0.7275.
—Australian Dollar Momentum and Trading Strategies
We believe derivative traders should prepare for upward momentum in the Australian Dollar as it holds strong near 0.7217, its highest level in over three months. This bullish trend is well-supported by Australia’s resilient Q2 GDP growth of 0.4% quarter-on-quarter and 2.1% year-on-year. With the Reserve Bank of Australia keeping its restrictive policy stance to combat inflation, this economic strength keeps the door wide open for another rate hike at the upcoming meeting.
To capitalize on this movement, we recommend that traders consider buying near-the-money call options or executing bull call spreads targeting the four-year high of 0.7275. The pair is trading safely above its 100-day simple moving average of 0.7079, which indicates that buyers remain firmly in control of the medium-term trend. However, because the Relative Strength Index is hovering near 68, we should expect some short-term consolidation before a clean breakout occurs.
—Risk Management and US Market Drivers
We must also keep a close watch on upcoming US inflation reports, specifically the PPI and CPI data, which will guide the Federal Reserve’s next policy move. Currently, fed funds futures reflect a 62% probability of a 25-basis-point rate hike at the next FOMC meeting, up from 51% prior to the latest US jobs report. This high-stakes environment means we should place tight stop-loss orders on long positions just under the 0.7079 support level to hedge against any sudden US Dollar rebounds.
