AUD/USD recovered from an early dip to trade about 0.12% higher near 0.6995 in Asia, supported by a softer US Dollar as markets leaned further towards an unchanged Federal Reserve decision later this month. The Dollar Index (DXY) was marginally lower around 100.70 after giving back a strong opening move. Pricing in the CME FedWatch tool put the probability of the Fed holding rates steady at the July meeting at 85.6%, up from 65.8% last week, after June US CPI data eased hawkish expectations.
The Australian Dollar also drew support after the People’s Bank of China kept Prime Lending Rates (PLRs) unchanged. In technical terms, AUD/USD was near 0.6990 and holding above the 20-day EMA at 0.6970, while the 14-period RSI sat at 51.8. Initial support sits around 0.6970, then below 0.6950, with the March 30 low at 0.6874 as a deeper floor; resistance is seen at the July 15 high of 0.7021, ahead of 0.7100. Separately, the RBA targets inflation of 2-3%, and iron ore exports were valued at $118 billion a year in 2021.
Derivative Trading Strategies
With the AUD/USD pair hovering near 0.6995 and the US Dollar Index showing signs of weakness around 100.70, we recommend that derivative traders position for continued upward momentum. Market expectations for the Federal Reserve to keep interest rates unchanged have surged to 85.6% following the cooling inflation data from June. This shifting interest rate differential suggests a prime opportunity to purchase short-term call options on the Australian Dollar, targeting the 0.7100 level.
From a technical perspective, we suggest maintaining a bullish bias as long as the exchange rate holds above the 20-day exponential moving average at 0.6970. To manage risk, option traders should utilize protective puts or set tight stop-losses just below the key support area of 0.6950. If the spot price breaks above the July 15 high of 0.7021, initiating bull call spreads could yield strong returns as the pair seeks to test higher ground.
Commodity Outlook and Fundamental Support
We must also closely monitor commodity markets, where iron ore prices are projected to hold steady near $100 per metric ton throughout the third quarter. This price stability, coupled with unchanged lending rates in China, supports Australia’s trade balance and strengthens the fundamentally-backed demand for the currency. Consequently, we see a favorable environment for leveraged futures traders to accumulate long positions on dips toward the 0.6970 support zone.
