The Australian dollar inched up to about 0.6976 against the US dollar in European trade on Friday, while remaining broadly weak as rising US Treasury yields supported the greenback and weighed on market sentiment. The 10-year US yield was around 4.70%, its highest in more than 18 months, and S&P 500 futures hovered near Thursday’s low of roughly 7,404. In rate pricing, CME FedWatch put the probability of a US rate rise next week at 33.7%, up from 11.8% a week earlier; it was near 34% a month ago before easing after June US CPI data.
Oil price strength, linked to risks of extended disruption at the Strait of Hormuz and the Bab el-Mandeb Strait, has lifted inflation expectations, with the two routes together accounting for 27% of global energy supply. The US dollar index, DXY, was near a three-week high at about 101.50. In Australia, June employment rose by 76.3K, compared with 44K in May, while the July flash S&P Global Composite PMI printed at 52.6 versus 50.4 in June. AUD/USD sat on the 20-period EMA at 0.6975, with RSI around 49; levels referenced include 0.7027, 0.7100, 0.6913 and 0.6865.
Recommended Strategies For Derivative Traders
Given the current market environment, we recommend that derivative traders adopt a cautious, range-bound strategy for the AUD/USD pair in the coming weeks. With the 10-year US Treasury yield hovering around a multi-month high of 4.70% and the US Dollar Index solidifying near 101.50, the greenback is maintaining strong upward pressure. Traders should look to utilize short-term options or boundary strategies to capitalize on the pair’s current consolidation near the 0.6975 pivot level.
We believe the risk-off sentiment, driven by escalating energy supply risks in the Middle East, makes a breakout strategy highly sensitive to upcoming inflation data. Historically, disruptions in the Strait of Hormuz have caused crude prices to spike by over 15% in weeks, which quickly translates into higher global inflation expectations. To hedge against this volatility, we suggest buying out-of-the-money call options on Brent crude alongside AUD/USD put options to protect against a sudden drop in risk appetite.
Exploiting Domestic Strength And Trading Ranges
On the domestic front, Australia’s surprisingly robust labor market—adding 76.3K jobs—and a strong Composite PMI of 52.6 show that the local economy is resilient. This domestic strength creates a solid floor for the Aussie, preventing a total collapse even as the Federal Reserve turn more hawkish. We can exploit this tug-of-war by selling premium through iron condors, targeting the established range between the support at 0.6913 and resistance at 0.7027.
For directional traders, we advise waiting for a confirmed breakout before committing to heavy leverage. A daily close above the July high of 0.7027 would signal a bullish run toward 0.7100, where traders can initiate long delta positions. Conversely, if the pair breaks below the immediate support of 0.6913, we should quickly pivot to short positions targeting the June low of 0.6865.
