AUD/USD ticked up 0.1% on Tuesday to about 0.7115, staying near Monday’s 0.7129 high, its strongest level in more than two months. The pair struggled to press higher as the US Dollar attempted a rebound after slipping to a two-month low, with support partly linked to rising oil prices and the risk of renewed US inflation. Higher energy costs could keep the Federal Reserve in a restrictive stance for longer, limiting downside in the USD and capping AUD/USD. Geopolitical tensions between the US and Iran, and worries around the Strait of Hormuz, helped push oil to a two-week high, adding to the inflation backdrop ahead of the Federal Open Market Committee minutes due Wednesday.
In Australia, the Reserve Bank of Australia’s hawkish posture continued to underpin the AUD, after Governor Michele Bullock said the Board weighed holding rates steady or raising them. Attention also turns to Australian July employment data on Thursday. Technically, the pair traded around 0.7113, holding above the 100-period SMA at 0.7083 and the 200-period SMA at 0.7068, with support seen at 0.7095; the RSI near 58 pointed to positive, but not stretched, momentum. Resistance stood at 0.7129.
Short-Term Trading Outlook and Derivative Strategies
We see the AUD/USD pair hovering near a two-month high of 0.7129, backed by a hawkish Reserve Bank of Australia. Since the pair is holding comfortably above its 100-hour Simple Moving Average of 0.7083, we advise derivative traders to favor a bullish bias in the short term. Implementing bull call spreads will allow us to target the next resistance levels while keeping our risk defined.
However, we must watch the US Dollar closely as Brent crude oil prices push toward $80 a barrel amid rising Middle East tensions. Historically, a 10% jump in oil prices can lift US consumer inflation by up to 0.4%, which might force the Federal Reserve to delay rate cuts. To guard against a sudden spike in the US Dollar, we recommend buying cheap, out-of-the-money AUD/USD put options as a safety net.
Australian Employment, Market Volatility, and Technical Levels
Back in Australia, the job market remains very strong, with the unemployment rate sitting tight at 4.1% and the central bank’s interest rate at 4.35%. If Thursday’s employment data shows further job growth, it will likely push the Aussie Dollar much higher. Because of the heavy news week, including the FOMC minutes, we suggest using a long straddle strategy to profit from the expected high volatility.
From a technical view, the horizontal support at 0.7095 and a healthy Relative Strength Index of 58 suggest the current upward move is not yet overbought. We should place our defensive stops just below the 200-period moving average of 0.7068 to protect our capital. A clean break above the 0.7129 resistance will open the door for quick gains, making short-term knock-out options a great tool for aggressive traders.
