AUD/USD edged up on Friday, trading around 0.7025 at the time of writing and up 0.20% on the day, helped by a modest pullback in the US Dollar after the pair earlier tested the 0.7000 area. The US Dollar Index slipped 0.30% to 100.95, following a week of strength underpinned by higher US Treasury yields and firmer expectations of further Federal Reserve tightening. US survey data did little to shift that pricing: the University of Michigan Consumer Sentiment Index was revised to 48.1 from 47.8, versus 51.7 in August, while the Consumer Expectations Index rose to 46.3 from 45.8 but fell from 51.5 a month earlier. Inflation expectations were unchanged at 4.6% for one year and 3.4% for five years.
Developments around a meeting between Donald Trump and Xi Jinping offered limited support for the Australian Dollar, with few concrete outcomes on issues including trade, artificial intelligence and Taiwan. At home, expectations of a Reserve Bank of Australia rate rise next week provided some underpinning even as the unemployment rate ticked up to 4.6% in August from 4.5%. In technical trade, AUD/USD was at 0.7027 on the one-hour chart, below the 100-period SMA at 0.7070 and the 200-period SMA at 0.7095, with RSI (14) at 52.3; resistance sits at 0.7045, 0.7070, 0.7075, 0.7095, 0.7105 and 0.7140, while support is seen at 0.7004 and 0.6984.
Near-Term Volatility And Trading Strategy
We advise derivative traders to prepare for heightened volatility in the AUD/USD pair as it tests the critical psychological level of 0.7000. Given that the US Dollar Index (DXY) remains robust near 100.95, any short-term recoveries in the Australian Dollar should be viewed as selling opportunities rather than a trend reversal. Historically, when the 10-year US Treasury yield stays elevated—currently hovering around the 4.0% mark—the Greenback maintains a strong yield advantage that caps the Aussie’s upside.
We recommend utilizing short-term options strategies, such as buying near-the-money put options, to capitalize on the broader bearish trend. Although the Reserve Bank of Australia is expected to raise its cash rate from the current 4.35% next week, persistent US inflation expectations at 4.6% suggest the Federal Reserve will keep interest rates restrictive for longer. This monetary policy divergence will likely limit the Australian Dollar’s recovery, making rallies toward the 100-period SMA at 0.7070 prime zones for initiating short positions.
Key Support And Resistance Levels
We should closely monitor the immediate support level at 0.7004 and the structural floor at 0.6984 for potential breakout trades. A confirmed weekly close below 0.6984 would signal a continuation of the bearish trend, opening the door for further downside toward the 0.6900 handle. Conversely, we can set tight stop-losses just above the 200-period SMA at 0.7095 to protect short positions against any unexpected positive developments in US-China trade relations.
