AUD\/USD eased to around 0.7010 in early Asian trade as the US Dollar firmed on higher US Treasury yields and rising expectations of further Federal Reserve tightening. Those bets followed a rate increase to the 3.75%\u20134.00% range, while CME FedWatch shows markets pricing a 65.9% probability of an October hike, up from 57.6% a week earlier and 9.4% a month earlier. Attention now shifts to Tuesday\u2019s Reserve Bank of Australia meeting.<\/p>\n
The RBA is expected to raise rates by 25 bps, taking the Official Cash Rate to 4.60%, a level last seen in November 2011, while Australia\u2019s unemployment rate rose 0.1ppt to 4.6% versus a 4.5% year-end projection. Fed messaging remained hawkish but mixed in market gauges: the FXS Speechtracker score for Beth Hammack was 7.2\/10 versus a 7.5\/10 historical average, and the FXS Fed Sentiment Index fell 0.34 to 147.72. Technically, AUD\/USD is below the 100-day SMA; RSI is 33, with resistance near 0.7070 then 0.7130 and 0.7265, while support sits at 0.7000.<\/p>\n
We recommend that derivative traders closely watch the key psychological level of 0.7000 on the AUD\/USD pair in the coming days. With the exchange rate currently hovering near 0.7010, option traders should consider buying short-term put options with a strike price of 0.6950 to hedge against a potential breakdown. If the price breaks cleanly below the Bollinger lower band at 0.7000, historical data shows we could see a rapid extension down to the 0.6900 support level.<\/p>\n
The upcoming Reserve Bank of Australia meeting on Tuesday is the immediate catalyst we must prepare for. If the RBA raises the cash rate to 4.60% as expected and signals more hikes, we could see a sharp intraday bounce. In this scenario, we can utilize bull call spreads targeting the 100-day Simple Moving Average at 0.7070, which currently acts as strong resistance.<\/p>\n
We must also look at the shifting bond dynamics, where the US 10-year Treasury yield is pushing toward 4.3%, widening the yield gap against Australia’s 10-year yield of around 4.15%. This yield divergence has historically pressured the Australian Dollar, with similar yield spreads in the past causing the pair to drop by over 3% within a three-week window. Therefore, any upward spikes toward the 0.7130 middle Bollinger band should be viewed as prime opportunities to establish fresh short positions using bear call spreads.<\/p>\n
Our technical indicators show the Daily Relative Strength Index is currently at 33, which points to heavily oversold conditions. Because selling pressure is stretched, we should avoid chasing the market lower at current spot prices without confirmation of a breakdown. Instead, we can write out-of-the-money put options below 0.6900 to collect premium, capitalizing on the high implied volatility surrounding this week’s central bank decisions.<\/p>\n\n\n\n