AUD/USD edged back towards 0.6900 on Friday, with the pair trading at 0.6904 as the US Dollar softened following a two-week rally. The move was linked to profit-taking before month-end and quarter-end portfolio rebalancing, easing near-term demand for the Greenback and allowing the Australian Dollar to recover some intraday losses, though broader price action remained under pressure.
Focus also stayed on China, given its role in driving demand for Australian commodity exports such as iron ore and coal. Recent Chinese data have been mixed, with May Retail Sales falling sharply even as Industrial Production continued to grow steadily. Technically, the pair hovered around the 20-period SMA at 0.6904, but remained below the 100-period SMA at 0.7016; resistance levels sat at 0.6906 and 0.6917, while the RSI printed 39 versus the neutral 50 line. Support was identified at 0.6887 and then 0.6876.
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Outlook Remains Bearish Despite Near-Term Bounce
We see the current recovery in AUD/USD near 0.6900 as a temporary reaction to US Dollar profit-taking before the end of the quarter. The underlying trend remains negative, presenting an opportunity for us to position for further weakness in the coming weeks. This short-term bounce is masking fundamental pressures that are likely to reassert themselves in July.
The primary headwind for the Aussie is the stark policy difference between the central banks. With recent US inflation data for May 2026 coming in at a sticky 3.4%, the Federal Reserve is expected to keep interest rates high for longer. In contrast, the Reserve Bank of Australia is facing slowing domestic growth, limiting its ability to match the Fed’s hawkishness and keeping a lid on the AUD.
Furthermore, the economic picture out of China, Australia’s largest trading partner, fails to inspire confidence. While industrial output remains steady, the latest Caixin Manufacturing PMI for May fell to 49.5, indicating a contraction in factory activity for the first time in three months. Lingering issues in China’s property sector continue to suppress demand for key Australian exports like iron ore.
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Technical Levels and Strategic Positioning
From a technical standpoint, the area between 0.6906 and 0.6917 is acting as a firm ceiling. As long as the pair trades below the more significant resistance at 0.7016, we view any strength as an opportunity to initiate bearish positions. We are looking at buying put options with strike prices around 0.6800 and 0.6750 for July and August expirations.
Historically, periods of diverging central bank policy and weak Chinese data, such as we saw in late 2025, have led to sustained downturns in the AUD/USD. We can also use options to manage risk by structuring bear call spreads, selling calls above the 0.7020 resistance level. This strategy allows us to collect premium while betting that the currency pair will struggle to break through these key technical barriers.
