AUD/USD rose towards 0.6930 on Thursday as the US Dollar weakened after softer US labour data led markets to scale back expectations of further Federal Reserve tightening, though weaker Australian trade figures capped gains. US nonfarm payrolls showed 57,000 jobs added in June versus expectations around 110,000, and May was revised down to 129,000 from 172, while the unemployment rate dipped to 4.2% from 4.3% even as participation fell to 61.5%. Average hourly earnings increased 0.3% MoM to $37.64 and annual wage growth held at 3.5%, with the workweek unchanged at 34.3 hours. Initial jobless claims fell to 215,000 for the week ending 27 June, while continuing claims edged up to 1.814 million, a mix that helped push Treasury yields lower and pulled the US Dollar Index towards 100.70.
On the 4-hour chart, the pair traded at 0.6930, supported by the 20-period SMA near 0.6895 but constrained below the 100-period SMA at 0.6972, with horizontal resistance at 0.6944. RSI sat near 61, suggesting firm momentum without overstretching. Support levels were flagged at 0.6916, 0.6903, 0.6895 and 0.6883, while a break above 0.6944 would bring 0.6972 into focus.
Fed Tightening Cycle and AUD/USD Outlook
Given the soft US Nonfarm Payrolls report for June, we believe the Federal Reserve’s rate hiking cycle has likely concluded. This development fundamentally weakens the US Dollar, creating a favorable environment for risk-sensitive currencies like the Australian Dollar. We see the AUD/USD pair having room to climb in the coming weeks as markets continue to price out further Fed tightening.
To capitalize on this view, we are looking at buying AUD/USD call options with a strike price just above the 0.6972 resistance level. These derivatives offer a defined-risk way to profit from a potential breakout driven by continued US Dollar weakness. The relatively firm momentum shown by the RSI near 61 suggests there is enough buying interest to test higher levels soon.
Strategies and Market Catalysts
This strategy is reinforced by the sharp repricing in interest rate markets following the jobs data. The swaps market is now pricing in less than a 15% chance of a rate hike at the Fed’s next meeting, a steep drop from over 50% just last week. This sentiment shift has pushed the US Dollar Index below the key 101.00 level, confirming the bearish trend for the greenback.
However, we must remain cautious due to headwinds from Australia’s own economy, such as the recent trade surplus narrowing to A$7.5 billion from A$10.2 billion. For a more conservative approach, we are also considering selling cash-secured puts with a strike price near the 0.6880 support level. This strategy would allow us to collect premium while expressing a moderately bullish to neutral view on the pair.
The next major catalyst will be the upcoming US Consumer Price Index (CPI) report, which will be critical for confirming our outlook. Current consensus expects year-over-year core inflation to be around 3.1%, a level that would likely solidify the Fed’s decision to remain on hold. An in-line or softer inflation reading would provide further impetus for our long AUD/USD positions.
