AUD/USD hovered near a three-month low, trading around 0.6890 on Wednesday, with the pair down 0.4% in the US session after a roughly 1.2% drop on Tuesday. Australia’s annual CPI slowed to 4.0% in May, undershooting the 4.4% forecast and easing from 4.2% in April, supported by lower fuel prices. Underlying inflation was firmer: trimmed-mean inflation rose to 3.6% from 3.4%, keeping the Reserve Bank of Australia’s policy backdrop in focus ahead of Thursday’s Employment Change and Unemployment Rate releases.
Attention also turns to the US Personal Consumption Expenditures report on Thursday after April’s headline PCE price index printed at 3.8% year on year and core PCE at 3.3%. On the 4-hour chart, AUD/USD was at 0.6887, remaining below the 20-period SMA at 0.6962 and the 100-period SMA at 0.7048, while RSI sat near 16. Resistance was flagged at 0.6892, then 0.6902 and 0.6919, with support seen at 0.6885.
RBA Policy And USD Strength In Focus
We are watching the Australian dollar closely as it trades near three-month lows around 0.6890. The recent cooling in headline inflation to 4.0% supports our view that the Reserve Bank of Australia will hold its cash rate steady at 4.35%, where it has been for over a year. This policy divergence with a still-cautious US Federal Reserve is the main driver for our strategy.
Our focus now sharpens on the US dollar’s strength following the latest Personal Consumption Expenditures report. Fresh data from the Commerce Department shows core PCE, the Fed’s preferred gauge, held firm at 3.4% year-over-year in May, resisting a significant cooldown. This reinforces expectations that the Fed will not be in a rush to cut rates, providing a strong tailwind for the USD.
Positioning For AUD/USD Weakness
Given this outlook, we are positioning for further weakness in the AUD/USD pair in the coming weeks. We see value in purchasing put options with strike prices below the 0.6850 level, offering a defined-risk way to profit from a continued downtrend. The upcoming Australian employment data on Thursday is a key event, where any sign of a weakening labor market could accelerate this move lower.
This bearish sentiment is reflected in the broader market, as recent data from the CME shows net short positions on AUD futures have increased by over 15% in the last month. The technical picture supports this, with the price holding below key moving averages and the Relative Strength Index in deeply oversold territory. While a short-term bounce is possible, we would view it as an opportunity to establish short positions at better levels.
