AUD/USD extended last week’s pullback from around 0.7240 and slid to session lows just above 0.7110, with the pair last trading at 0.7128. Risk sentiment weakened as oil consolidated above $100, while markets increased pricing for a 25bp Federal Reserve rate rise on Wednesday and another move before year-end. That repricing followed US Consumer Price Index figures on Friday showing inflation still running well above the Fed’s 2% target.
In energy markets, crude stayed north of $100 as disruption risks grew: attacks on commercial vessels have left the Strait of Hormuz close to unusable, and Iran-backed Houthis have threatened to blockade the Bab el-Mandeb Strait, a key alternative route for Gulf exports. Technically, pressure is focused on support at 0.7110, with the 4-hour RSI (14) slightly oversold and MACD below zero. The August 20 low at 0.7105 and the September 2 low near 0.7120 mark the base of the past four weeks’ range and the 38.6% Fibonacci retracement of the July–September rally; a break would expose 0.7065 and then 0.7040, which aligns with the 61.8% retracement. Resistance sits at 0.7187.
Trading Strategy And Technical Outlook
We recommend that derivative traders position for more downside in the AUD/USD by targeting the key support level near 0.7110. A clean break below this area could open the path toward the August low of 0.7065 and possibly 0.7040. To profit from this bearish trend, traders can look at buying short-term put options or setting up short futures positions.
Macroeconomic Drivers And Risk Factors
This view is backed by the upcoming Federal Reserve meeting this Wednesday, where markets expect another interest rate hike to fight high inflation. Recent US inflation data shows prices are still rising well above the Fed’s 2% target, which keeps the US Dollar strong. Historically, when the Fed raises rates faster than the Reserve Bank of Australia, the Aussie dollar tends to weaken.
We also suggest using oil futures or options to hedge against rising energy costs as crude prices stay steady above $100. Shippers are facing major delays in the Middle East, with threats to close the Strait of Hormuz and the Bab el-Mandeb Strait forcing cargo through longer routes. This supply trouble boosts the US Dollar as a safe haven while hurting riskier currencies like the Aussie.
