Insights 
VT 
AUD/USD declined by 0.31% after reaching a two-week high, influenced by strengthening US Dollar. The pair fell below the 0.6600 mark following a recent inflation report that diminished expectations of an RBA rate hike. At the start of Friday’s Asian session, AUD/USD traded at 0.6552.
The technical outlook shows potential movement towards the 100-day and 20-day SMAs at 0.6535/32. The Relative Strength Index indicates bearish momentum approaching the 50-neutral line. A fall below 0.6533 could resume a downtrend towards 0.6600 with support near the 200-day SMA at 0.6443.
Potential Downside Targets
A decisive move below 0.6443 risks exposure to the June 23 low at 0.6372. Conversely, surpassing 0.6561 could test the 0.6600 mark, potentially reaching the October 29 high at 0.6617 and even 0.6650.
The Australian Dollar experienced varied performance against major currencies this month, showing notable strength against the Japanese Yen.
We’ve seen the AUD/USD pair retreat from its recent high near 0.6617, confirming the renewed strength in the US dollar. This move was amplified after last week’s US Non-Farm Payrolls report showed an unexpected gain of 255,000 jobs, reinforcing the Federal Reserve’s hawkish stance. The pair is now trading at 0.6552, and the path of least resistance appears to be downwards.
On the Australian side, the momentum for another Reserve Bank of Australia rate hike is diminishing. The quarterly CPI data released yesterday came in at 4.2% year-over-year, just below the 4.3% consensus and a slight moderation from the prior quarter. This gives the RBA room to remain on hold, especially as global demand for key exports like iron ore has softened in recent months.
Trading Strategy Options
For traders positioned for further downside, buying December expiry put options with strike prices around 0.6450 looks attractive. This strategy allows for participation in a potential move towards the 200-day SMA at 0.6443 with a defined risk. The cost of these options remains reasonable, with implied volatility sitting near the middle of its twelve-month range.
A more conservative approach would be to implement a bear put spread to reduce the upfront premium cost. One could buy a 0.6500 strike put and simultaneously sell a 0.6400 strike put for the same December expiry. This positions for a gradual decline while capping potential profits if the pair drops below 0.6400.
We must watch the 0.6533 level, which represents the confluence of the 100-day and 20-day moving averages. A sustained break below this area would likely accelerate the downtrend toward the 200-day SMA. Conversely, any rally that reclaims the 0.6617 high would signal that this current dollar strength is temporary and would force a reassessment of bearish positions.
