AUD/USD hovered near a two-month low on Thursday, trading around 0.6980 as cautious sentiment and renewed US Dollar demand kept the Australian Dollar under pressure. At the time of writing, the pair stood at 0.6994, down 0.15% on the day. The US Dollar drew support after May Producer Price Index data pointed to persistent inflation: headline PPI rose 6.5% year on year versus 5.7% previously and a 6.4% consensus, while core PPI increased 0.4% month on month compared with 0.7% prior and a 0.5% forecast. Core PPI was unchanged at 4.9% year on year, supporting expectations the Federal Reserve may keep policy restrictive for longer. Labour data were mixed as initial jobless claims rose by 4K to 229K, above the 219K estimate, and continuing claims climbed to 1.795 million, yet the broader tone remained resilient. On the four-hour chart, AUD/USD traded at 0.6988 and stayed below the 20-period SMA at 0.7025 and the 100-period SMA at 0.7120, keeping the near-term bias bearish. The RSI sat just above 30, suggesting pressure is close to oversold. Resistance is seen at 0.6995 and near 0.7002, with support at 0.6987 and 0.6979. The technical analysis was produced with the help of an AI tool.

Macro Drivers And Central Bank Dynamics

We are watching the AUD/USD pair closely as it trades near the 0.6650 mark, holding just above its recent lows. The market mood remains cautious, with the strength of the US dollar being the primary driver of price action. This dynamic is keeping pressure on the Australian dollar, even as our own economic picture shows some resilience. The US dollar’s strength is underpinned by recent economic data showing core inflation remains persistent, with the latest Consumer Price Index (CPI) coming in at an annualized 3.5%. Combined with a solid jobs report last week that saw the addition of 210,000 non-farm payrolls, the Federal Reserve has little reason to signal a near-term policy pivot. This reinforces our expectation that US interest rates will remain elevated for longer than previously anticipated. On our side, the Reserve Bank of Australia is also in a holding pattern, as our own domestic inflation is proving sticky at 3.1%, still above the target band. While this domestic reality provides some support for the Aussie dollar, it is not enough to reverse the broader trend driven by US monetary policy. The RBA’s reluctance to turn dovish simply prevents a more rapid decline for now.

Trading Strategies And Upcoming Risk Events

Given this backdrop of two central banks locked in a hawkish stance, we expect volatility for the AUD/USD to increase in the coming weeks. Buying volatility through options appears to be a sensible approach. Strategies like purchasing long straddles or strangles could be effective, as they are designed to profit from a significant price breakout, regardless of the direction. Looking at the calendar, we see major event risk surrounding the upcoming RBA meeting minutes and the Federal Reserve’s policy announcement in early July. We are positioning for further downside by purchasing out-of-the-money put options with expirations set for mid-July. This provides a cost-effective way to capitalize on a potential break below the key 0.6600 support level. For a more risk-defined strategy, we are also considering bearish put spreads. This involves buying a put option and simultaneously selling another put with a lower strike price, which lowers the overall cost of the trade. This approach allows us to maintain a bearish bias while clearly defining our maximum risk and reward ahead of key economic events.

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