AUD/USD slipped back towards the 0.6990 area in Monday’s US session after firm US factory data lifted the Dollar, reversing an earlier push above 0.7050. The ISM Manufacturing PMI rose to 55.6 in July versus 54.0 expected and 53.3 in June; new orders also edged up, with the index at 56.7 from 56.0. Prices Paid eased to 71.1 from 73.0, though it stayed above the 50 threshold. The data helped nudge US Treasury yields higher and supported the Greenback, while the softer pricing component introduced a counterpoint for Federal Reserve expectations.
Focus shifts to Asia-Pacific releases, with Australia due to publish final S&P Global Services PMI at 53.0 and Composite PMI at 52.6 for July, both seen unchanged. China’s RatingDog Services PMI is forecast at 53.7, down from 54.1 but still above 50. Technically, AUD/USD traded at 0.6993, just under the 20-period SMA at 0.6997 and above the 100-period SMA at 0.6984; nearby support sits at 0.6985, and RSI was around 47. Resistance levels are flagged at 0.6997, 0.6999, 0.7009 and 0.7018.
Derivative Trading Strategies and Technical Outlook
We advise derivative traders to prepare for increased volatility and potential downside pressure on the AUD/USD pair in the coming weeks. The surprisingly strong US ISM Manufacturing PMI of 55.6 suggests the US economy remains highly resilient, which will likely keep Treasury yields elevated and support the US Dollar. Therefore, we should favor strategies that capitalize on USD strength, such as buying short-term put options on the AUD/USD.
Looking at the charts, the pair is tightly squeezed between the 20-period SMA at 0.6997 and the 100-period SMA at 0.6984. Because the RSI is sitting at 47, we recommend utilizing range-bound options strategies like iron condors to capture premium decay while the market consolidates. However, if the price breaks cleanly below the 0.6984 support level, traders should pivot to short futures positions targeting the 0.6900 floor.
Impact of Chinese Data and US Inflation on AUD/USD Outlook
We must also closely monitor China’s upcoming Services PMI, which is expected to ease to 53.7. Historically, a slowing Chinese service sector directly impacts Australian export demand, given that China absorbs roughly one-third of Australia’s total exports. If Chinese data underperforms, we can expect the AUD to face further downward pressure, validating our bearish bias on the pair.
The persistency in the US Prices Paid index at 71.1 indicates that inflationary pressures are sticky, which will likely force the Federal Reserve to keep interest rates higher for longer. Recent CME FedWatch data shows that the probability of a rate cut in the next meeting has dropped significantly, supporting a stronger greenback. Under these conditions, we believe selling AUD/USD call options near the 0.7020 resistance zone offers an excellent risk-to-reward ratio for yield-seeking traders.
