AUD/USD edged up to about 0.7090 in early Asian trading on Monday as the US Dollar softened with Federal Reserve tightening expectations receding after weaker US data. Markets are awaiting China’s Retail Sales and Industrial Production releases later in the day, while Australia’s July employment report is due on Thursday. Geopolitical risk is also in focus after Israel resumed airstrikes against Lebanon in recent days, a backdrop that could support the Greenback as a safe-haven and weigh on the pair.
US Census Bureau figures showed Retail Sales fell 0.6% month-on-month in July after a 0.2% rise in June, missing forecasts for 0.1% growth; annual Retail Sales printed at 5.0% versus 6.8% previously (revised from 6.7%). In rates pricing, CME FedWatch implied odds of a September hike fell from around 50% to 33.1% this week. On the charts, AUD/USD remains supported above the 100-day simple moving average near 0.7060, with the RSI (14) at 62.7; resistance sits near 0.7105, while support levels are flagged at 0.7026 and 0.6945. The RBA’s inflation target remains 2–3%, and iron ore exports were valued at $118bn a year in 2021.
Technical Outlook And Derivative Opportunity
We see strong immediate opportunities for derivative traders as the AUD/USD tests key resistance near the 0.7105 level. Holding above the 100-day simple moving average of 0.7060, the pair’s bullish momentum is supported by a solid Relative Strength Index of 62.7. We recommend derivative traders watch for a confirmed daily close above 0.7105 to signal a breakout for long call options.
This upward momentum follows weak US retail sales, which dropped 0.6% month-on-month in July compared to expectations of a 0.1% rise. Consequently, the CME FedWatch Tool shows the probability of a September Fed rate hike has plummeted to just 33.1%. We believe this widening monetary policy divergence between a pausing Federal Reserve and a hawkish Reserve Bank of Australia favors buying AUD calls on shallow pullbacks.
Upcoming Risks And Hedging Strategies
We must also prepare for imminent volatility as China—Australia’s largest trading partner—releases its latest economic data. Recent industrial output figures in China have hovered around a modest 4.5% year-on-year growth, making any upside surprise highly positive for the commodity-linked Australian dollar. Additionally, we are closely monitoring Thursday’s Australian employment report, where the unemployment rate is historically tight at around 4.1%.
RBA Governor Michele Bullock’s hawkish stance, combined with her warning that the bank will not hesitate to act on inflation, provides a sturdy floor for the Aussie. This is further supported by global iron ore prices, Australia’s primary export, which have stabilized near $100 per metric ton despite broader global demand fluctuations. We suggest utilizing short-term put options to hedge against any sudden commodity price drops while maintaining a primary bullish bias.
However, we advise keeping a close eye on rising geopolitical risks as Israel resumes airstrikes in Lebanon, which could trigger safe-haven flows back into the US Dollar. A sudden escalation in the Middle East typically drives commodity volatility and hurts risk-sensitive currencies like the AUD. To mitigate this risk, traders should consider using stop-loss orders or protective put options to safeguard long positions against sudden market reversals.
