The Australian dollar traded around 0.7060 against the US dollar on Monday, easing after six consecutive weeks of gains as markets positioned for Tuesday\u2019s Reserve Bank of Australia decision. The cash rate is widely expected to remain at 4.35%, following earlier 2026 increases from 3.60%, while the accompanying Statement on Monetary Policy will deliver updated forecasts and Governor Michelle Bullock is due to speak soon after.<\/p>\n\n
In the US, July nonfarm payrolls showed a decline of 23,000 jobs versus expectations for an 80,000 rise, and the unemployment rate edged down to 4.1% as the labour force contracted, tempering September Federal Reserve hike expectations ahead of Wednesday\u2019s Consumer Price Index release. In AUD\/USD, short-term technicals kept a mild upward bias, with the pair at 0.7063 above the 20-period SMA at 0.7050 and the 100-period SMA at 0.7007, while RSI near 59 pointed to firm momentum. Resistance sat at 0.7064 and 0.7070, with support at 0.7057 and 0.7054.<\/p>\n\n
With the Reserve Bank of Australia expected to hold rates at 4.35% tomorrow, we recommend derivative traders focus on short-term implied volatility. Buying straddles or strangles on the AUD\/USD pair prior to Governor Bullock\u2019s press conference could yield strong returns if she signals a hawkish shift. Historical data from previous RBA forecast releases shows that unexpected policy language can trigger rapid swings of over 80 pips in a single session.<\/p>\n\n
Looking ahead to Wednesday’s US CPI release, we should brace for a potential trend reversal if inflation beats expectations. Given the surprise loss of 23,000 US jobs in July, any hotter-than-expected CPI print will sharply revive Federal Reserve rate hike bets. Traders can hedge against a sudden drop in the Australian Dollar by buying out-of-the-money AUD\/USD put options with an expiration of two to three weeks.<\/p>\n\n
From a technical standpoint, AUD\/USD is holding just above its 20-period moving average at 0.7050. We suggest placing stop-entry buy orders slightly above the immediate resistance level of 0.7070 to capture a potential breakout. Conversely, a break below the 100-period moving average at 0.7007 would invalidate the bullish trend and favor short futures positions.<\/p>\n\n
In the coming weeks, the spread between US and Australian yields will remain the primary driver for derivative markets. If Australian inflation stays sticky while the US labor market cools, swap markets will likely price in an RBA rate hike later this year. We can capitalize on this divergence by entering bull-call spreads on the Aussie, targeting the 0.7200 level by September.<\/p>\n\n\n\n