AUD/USD extended gains for a second session, trading around 0.7000 in Asian hours on Monday as the US Dollar weakened alongside a sharp fall in oil prices. The move followed a weekend pause in US action against Iran, with Tehran also suspending retaliatory strikes after 13 days of escalation, though markets remained alert to disruption risks after Iran-backed Houthis in Yemen said they had attacked Saudi facilities along the Red Sea.
Reports pointed to US concerns about dwindling interceptor supplies and a limited set of remaining targets in Iran, while General Dan Caine was said to have warned on Friday that continuing operations would strain munitions reserves. Attention is also on the Federal Reserve meeting on Wednesday, where rates are widely expected to be held steady before a possible return to hikes in September, although some still see a chance of a move this week. In Australia, firm June employment data has supported expectations of more tightening from the Reserve Bank of Australia, which has raised rates three times this year, with June and Q2 inflation data due later this week.
Trading Strategies for the Australian Dollar
As AUD/USD tests the key psychological level of 0.7000, we recommend derivative traders position for a potential bullish breakout in the coming weeks. Historical data shows that when the pair breaks sustained resistance at this level, it often triggers rapid momentum toward the 0.7150 mark. We suggest buying short-term AUD/USD call options to capitalize on this upward trend while limiting downside risk.
Our bullish outlook on the Australian Dollar is heavily supported by the Reserve Bank of Australia’s aggressive stance, having already raised its cash rate three times this year to combat sticky inflation. With Australia’s critical Q2 inflation data releasing this week, a reading above the projected 3.8% would likely seal another RBA rate hike in the near term. Derivative traders can use futures contracts to go long on the AUD, anticipating a widening yield spread against the US Dollar.
Outlook on the US Dollar and Energy Markets
Meanwhile, the US Dollar is facing downward pressure ahead of Wednesday’s Federal Reserve meeting, where policymakers are widely expected to hold interest rates steady. CME FedWatch data currently shows an 85% probability of a rate pause this week, which should temporarily cap any greenback recovery. We advise shorting USD index (DXY) futures or buying put options on the US Dollar to exploit this near-term weakness.
Although crude oil prices recently plummeted due to a temporary pause in US-Iran hostilities, ongoing Houthi attacks on Red Sea shipping maintain a high geopolitical risk premium. To navigate this highly unstable energy market, we recommend employing long straddle strategies on Brent or WTI crude options. This approach allows traders to profit from sharp price swings in either direction as supply concerns remain unresolved.
