AUD/USD extended a sideways move for a third session, trading just above the 0.7000 level in Monday’s Asian hours, as demand for the US Dollar limited any bounce. Risk appetite weakened after weekend geopolitical developments and renewed closure of the Strait of Hormuz by Iran, while a hawkish Federal Reserve helped the dollar stabilise after easing from a peak last seen in May 2025. The Reserve Bank of Australia has flagged the possibility of further rate rises if inflation persists, which has helped to temper selling pressure in the Australian Dollar. Technically, AUD/USD has held below the 61.8% Fibonacci retracement of the March–May advance, even as a break beneath the 100-day SMA and the 50.0% retracement keeps the bias tilted lower. Momentum gauges remain soft, with the RSI near 37, while MACD sits slightly below zero. A sustained move below the 61.8% level could open the 78.6% target around 0.6928 and the prior swing base near 0.6832, while resistance is seen at 0.7055, then near 0.7085, ahead of 0.7108 and 0.7173.

Bearish Outlook And Market Drivers

We see the AUD/USD pair is trapped in a narrow range around the 0.7000 level, but our underlying bias for the coming weeks remains bearish. The US dollar continues to show strength, and we believe the path of least resistance for the pair is to the downside. Our strategies should be positioned to profit from a potential break lower. The Federal Reserve’s hawkish stance is being reinforced by recent data, with last week’s US Core PCE Price Index coming in at 3.1%, slightly hotter than expected. This keeps the dollar attractive, especially as geopolitical risks surrounding Iran’s actions in the Strait of Hormuz push traders towards safe-haven assets. This environment acts as a direct headwind for the risk-sensitive Australian dollar. Market positioning supports this bearish view, as recent data from the CFTC shows non-commercial traders have increased their net short positions on the AUD for the third consecutive week. This tells us that larger market participants are also betting on a weaker Aussie dollar. From a technical standpoint, the failure to reclaim the 100-day moving average near 0.7085 is a significant sign of weakness. However, we must recognize the factors limiting a sharp decline. The Reserve Bank of Australia is dealing with its own inflation issues, with Australia’s Q1 2026 inflation data showing a stubborn 4.2% print, keeping the possibility of another RBA rate hike firmly on the table. This threat of policy tightening is providing a floor for the Aussie dollar for now. Furthermore, we are seeing some support from key commodity prices, which are crucial for the Australian economy. Iron ore futures, for instance, have stabilized and bounced off the $105/tonne level last week amid renewed stimulus talks in Beijing. This fundamental support from Australia’s largest trading partner explains why the pair has struggled to break down decisively.

Trading Strategies And Risk Management

Considering this push and pull, we are looking at buying put options with a strike price below the immediate 0.6980 support level. This strategy provides us with exposure to the downside while defining our maximum risk, which is important if Chinese stimulus news causes an unexpected rally. Historically, the area below 0.6950 has attracted buyers, making options a prudent way to engage. For a more nuanced approach, a bear put spread could be an effective strategy over the next few weeks. By buying a put option around 0.7000 and simultaneously selling a put option with a lower strike, such as 0.6900, we can lower the overall cost of the trade. This is a suitable play if we anticipate a gradual grind lower toward the 0.6928 target rather than a dramatic collapse. Alternatively, if we believe the current consolidation will persist, selling an out-of-the-money strangle could be a viable option. This involves selling a call option with a strike price above the 0.7100 resistance and a put option with a strike below 0.6950 support. This strategy would profit from time decay as long as the AUD/USD remains stuck within this broader range.

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