Technical Setup and Fundamental Headwinds
We see the AUD/USD pair holding near its two-week peak, though the 0.7200 level is proving to be a challenge. The technical setup looks constructive after breaking the 0.7180 hurdle, suggesting more upside is possible. However, fundamental factors are creating a headwind for any significant rally. Reduced bets for a June interest rate hike by the Reserve Bank of Australia will likely cap gains, especially as we look towards the next meeting on June 18th. Markets are currently pricing in less than a 15% chance of a hike, particularly after the latest monthly CPI indicator showed annual inflation easing to 3.6%. The mixed China PMI data, with the official reading unexpectedly contracting to 49.5 while the Caixin survey expanded to 51.7, adds to this cautious outlook. At the same time, the US dollar is finding support from a hawkish Federal Reserve. The core PCE price index, the Fed’s preferred inflation gauge, remains stubbornly above target at 2.8% year-over-year, reinforcing the Fed’s patient stance on rate cuts. This persistent policy difference between a neutral RBA and a cautious Fed should limit how far the AUD/USD can climb.Trading Strategy and Key Levels
Given this capped upside, we believe selling out-of-the-money call options or implementing bear call spreads with strikes near the 0.7230 or 0.7270 resistance levels could be a prudent strategy. This approach allows us to collect premium while acknowledging the strong technical and fundamental resistance overhead. Historically, the AUD/USD has underperformed during periods of sharp monetary policy divergence, similar to the dynamic we saw in late 2023. For those anticipating a turn lower, buying puts or establishing bear put spreads could be considered if the pair breaks decisively below the key 0.7175 support zone. A move below this level would signal that the recent upward momentum has failed. The next major support levels to watch would be around 0.7153 and then 0.7125.Start trading now — click here to create your real VT Markets account.
