The Australian dollar rose across major pairs on Friday, up 0.23% to about 0.6940 versus the US dollar during the European session, as markets pared back expectations of further Federal Reserve tightening. S&P 500 futures added 0.22% to around 7,500, while the US Dollar Index (DXY) slipped 0.1% to near 100.75. Futures pricing implied a 53.2% chance of at least one rate rise at the Fed’s September meeting, down from almost 64% on Wednesday, after June US Nonfarm Payrolls showed 57K new jobs against estimates of 110K, and May was revised to 129K from 172K.
At home, support also came from Reserve Bank of Australia communication in the June meeting minutes, which referenced taking steps to ensure price stability, including potential rate hikes, contrasting with expectations that the tightening cycle had ended. The move unfolded alongside “risk-on” positioning, where equities and most commodities tend to rise, lifting commodity-linked currencies; the report cited AUD, CAD, NZD, RUB and ZAR. In “risk-off” conditions, bonds and gold typically gain and havens such as USD, JPY and CHF are favoured.
Market Sentiment Shift and Strategic Implications
We are seeing a clear shift in market mood following the weak US jobs report for June 2026. The chances of a Federal Reserve rate hike in September have fallen significantly, which is fueling a risk-on appetite among investors. This environment directly impacts currency and equity derivative markets.
Given the divergence between a hawkish Reserve Bank of Australia and a potentially pausing Fed, we believe going long the Australian Dollar against the US dollar is the primary trade. This can be expressed using call options on the AUD/USD or by buying AUD futures to capitalize on expected upside in the coming weeks. We see the pair testing the 0.7000 psychological level shortly.
Opportunities in Commodity Currencies and Cautious Stance on Havens
This risk-on sentiment also supports broader equity markets, making long positions in S&P 500 futures attractive. We also see opportunities in other commodity-linked currencies, such as the Canadian Dollar, which typically strengthens when the US dollar weakens. Recent data shows Canada’s own employment figures for June beat expectations, adding 45,000 jobs and supporting the CAD.
Consequently, we are cautious on safe-haven currencies like the Japanese Yen and Swiss Franc. In this environment, these currencies tend to underperform, presenting a potential opportunity to short the Yen against the stronger Australian Dollar. Historically, the AUD/JPY pair performs very well during periods of global growth optimism.
This view on the Aussie is reinforced by Australia’s recent Q2 2026 CPI report, which showed core inflation stubbornly high at 3.8%, justifying the RBA’s firm stance. Furthermore, the latest CFTC report shows large speculators have already cut their net long US dollar positions by over $2 billion. This suggests the trend of a weaker dollar is already gaining momentum among major market players.
