AUD/USD extended its decline for a second day, trading near 0.7160 in Asian hours on Wednesday. The pair remains inside a rectangle pattern on the daily chart, consistent with consolidation. Price is still above the 50-day EMA but sits just below the nine-day EMA, which is acting as near-term resistance, while the 14-day RSI is hovering around the 50 level, pointing to neutral momentum.
The immediate hurdle is the nine-day EMA at 0.7164; a move above it could shift momentum towards the top of the range around 0.7270 and then 0.7277, the highest level since June 2022, set on 6 May. On the downside, focus is on the 50-day EMA at 0.7120, and a break there could open the way to the rectangle floor near 0.7070; a further breakdown would bring 0.6833 into view, the four-month low recorded on 30 March.
Fundamental Drivers And Technical Set-Up
We see the AUD/USD is consolidating within a clear rectangle pattern, suggesting market indecision around the 0.7160 mark. This reflects fundamental uncertainty as the Reserve Bank of Australia holds rates steady while watching inflation that printed at 3.1% for the first quarter of 2026. This holding pattern prevents the pair from making a decisive move.
Potential Trading Strategies And Market Outlook
For those leaning bullish, we are watching the 9-day EMA at 0.7164 as a first test before a potential run toward the 0.7270 top of the range. A break above could be fueled by strength in iron ore prices, which have recently stabilized around $115 per tonne. We would consider buying call options with strikes above 0.7270 to capture this potential upward momentum.
On the other hand, a move below the 50-day EMA at 0.7120 would signal weakness, opening up a test of the 0.7070 support level. Given that recent US core CPI remains elevated at 3.5%, any further hawkish talk from the Federal Reserve could easily push the pair lower. In this scenario, buying put options targeting the 0.7000 level offers a way to speculate on a downturn.
Given the neutral RSI and tight range, implied volatility is relatively subdued, which presents an opportunity for a long strangle strategy. Buying an out-of-the-money call and an out-of-the-money put allows us to profit from a significant breakout in either direction over the next few weeks. This situation is reminiscent of the consolidation in late 2023, which was followed by a sharp trend once central bank policy became clearer.
