AUD/USD extended Monday’s pullback towards the 0.7100 area as the US Dollar stayed firm ahead of Wednesday’s FOMC meeting, where the Fed is expected to raise the FFTR by 25 basis points. The pair has posted two daily declines after topping 0.7200 last week, though it remains supported by the RBA’s hawkish bias and inflation above target. Australia’s August PMIs stayed expansionary, with Manufacturing at 52.0 and Services at 53.2, while the trade surplus narrowed to A$1.923 billion in July from A$2.341 billion in June. GDP rose 0.4% QoQ in Q2 2026 versus 0.3%, but annual growth eased to 2.1% from 2.5%; unemployment increased to 4.5% and employment fell 15.8K after a revised 80.3K gain. Headline inflation cooled to 3.5% from 3.8%, with Trimmed Mean steady at 3.6%; inflation expectations rose to 4.9% from 4.7%, and policymakers still see inflation returning to the 2%–3% band in early 2028.
China’s data offered steadiness rather than fresh momentum: GDP grew 4.3% YoY in April–June, Industrial Production rose 5.2% YTD and July’s trade surplus widened to $119.1 billion, while Retail Sales increased 0.4% YoY. PMIs were mixed, with NBS Manufacturing at 49.8 (from 49.2) and Services at 49.0, while RatingDog showed Manufacturing at 51.5 (from 50.9) and Services at 51.4 (from 50.4). CPI rose 0.8% YoY (from 0.5%) and 0.4% m/m; Producer Prices were reported at 3.8% YoY versus 3.5% previously, and the PBoC held the one-year LPR at 3.00% and the five-year at 3.50%. The RBA kept the OCR unchanged on 11 August in a unanimous decision, discussed a 25-basis-point increase, and markets price just over 38 bps of tightening by year-end with a 25-bps move expected on 29 September. CFTC data for the week to 8 September showed net shorts improving by about 4.5K to nearly 35K, open interest rising by roughly 63.8K to about 455.5K (around 16%), and speculative exposure at -7.7% with percentiles at 84.2 and 72.4. Technically, AUD/USD was at 0.7129 and above the 55-, 100- and 200-day SMAs between about 0.7060 and 0.7006, with support at 0.7079, 0.7061 and 0.7006, and resistance at 0.7283 then 0.7661.
Volatility Risks and Policy Divergence
We suggest derivative traders prepare for heightened volatility in the AUD/USD pair as it hovers near the critical 0.7100 level ahead of tomorrow’s Federal Reserve decision. The US Dollar has shown renewed strength, but the Australian Dollar remains supported by a hawkish Reserve Bank of Australia (RBA) which may hike rates by 25 basis points on September 29. Historically, such policy contrasts have triggered rapid swings of over 200 pips in this currency pair.
We are closely monitoring the latest market data, which reveals that bearish bets against the Aussie are unwinding as open interest recently surged by 16% to 455,500 contracts. This massive influx of capital suggests that traders are actively covering their short positions and building new long exposure. For those trading derivatives, we recommend looking at call options if the exchange rate successfully holds above the 55-day moving average near 0.7050.
Trading Strategies and China’s Economic Influence
If the Federal Reserve delivers a surprisingly aggressive tone, we expect the AUD/USD to drop toward its major 200-day moving average cushion at 0.7006. To hedge against this risk, traders should consider purchasing put options with strike prices set just below the 0.7000 psychological floor. On the other hand, a clean break above the heavy 0.7200 resistance level could quickly open the doors to the year-to-date high of 0.7283.
We also need to watch China’s mixed economic signals, where recent retail sales grew by a mere 0.4% despite a steady 5.2% expansion in industrial production. Because China is stabilizing rather than booming, it will not provide the explosive demand needed to lift the Aussie on its own. Therefore, we advise focusing on short-term interest rate differentials and technical support levels rather than expecting a commodity-led breakout.
