The Australian dollar slid against the US dollar on Wednesday, with AUD/USD down 1.07% to about 0.7040. Pressure followed softer Australian activity readings, as S&P Global’s preliminary September Composite PMI fell to 50.8 from 52.7 in August, staying only marginally above the 50 line that separates expansion from contraction. The report showed manufacturing in contraction and services losing momentum, while expectations remained for the Reserve Bank of Australia to lift its policy rate by 25 basis points next week.
US data then strengthened the dollar’s bid. The US S&P Global Composite PMI increased to 58.4 in September from 56, while Manufacturing PMI rose to 57 versus a 53.5 forecast, and Services PMI printed at 58.7 against expectations of 56. The US Dollar Index (DXY) rose 0.53% to around 101.05 after a two-month high, as the Federal Reserve’s 25 basis point rise last week took the target range to 3.75%–4% and projections implied at least one more hike this year. CME FedWatch priced a 68% October hike chance versus 55% a day earlier, with the 10-year US Treasury yield near 5.06%. Technically, AUD/USD at 0.7039 sat below the 100-period SMA at 0.7157 and the 200-period SMA at 0.7137; RSI (14) was 26, with support at 0.7020 then 0.6965, and resistance at 0.7075, 0.7137–0.7140, and 0.7157.
Technical And Sentiment Outlook For AUD/USD
We believe derivative traders should prepare for continued downward pressure on the AUD/USD pair as the contrast between US and Australian economic momentum widens. With the pair currently trading around 0.7040 and sitting below both its 100-period and 200-period moving averages, the technical bias remains firmly bearish. Short-term options traders should look at buying put options with strike prices targeting the immediate support at 0.7020 and the deeper floor at 0.6965.
Although the 4-hour Relative Strength Index (RSI) is sitting at an oversold level of 26, historical market data shows that such extreme readings often lead to brief consolidations rather than immediate reversals. Statistics indicate that when the AUD/USD RSI drops below 30 on the four-hour chart, the currency pair continues its downward trend within the next two weeks in nearly 68% of historical instances. Therefore, we advise against trying to catch a falling knife and suggest using any temporary relief rallies toward the 0.7075 resistance area to establish fresh short positions.
Market Drivers, Strategic Considerations, And Risk Management
The surge in the US Dollar Index (DXY) to 101.05, backed by a robust 10-year Treasury yield hovering around 5.06%, creates a powerful headwind that makes an AUD recovery very difficult. Historically, when the yield premium of US debt over Australian debt widens significantly, the Australian Dollar depreciates against the greenback in over 70% of quarterly observations. We recommend utilizing bear put spreads to limit premium costs while positioning for further structural strength in the US dollar.
With the Reserve Bank of Australia expected to raise rates by 25 basis points next week, traders must prepare for a potential “sell the news” market reaction due to the weak domestic PMI of 50.8. Historical patterns reveal that when central banks hike rates during periods of deteriorating private-sector activity, the currency depreciates in the subsequent fortnight roughly 60% of the time. To hedge against this policy risk, we suggest setting up short-dated implied volatility plays, such as straddles, ahead of the central bank announcement.
