The Australian dollar has weakened even though Australia’s cash rate sits at 4.35%, above the Federal Reserve’s 3.75–4.00% range after a quarter-point rise. AUD/USD has dropped in four of the past five sessions, sliding from the September high near 0.7250 to just under 0.7100 and falling below its 50-day EMA for the first time in six weeks. The RBA raised rates three times earlier this year, paused in August, and flagged further tightening if inflation stays elevated; July inflation was 3.5% and the underlying measure was 3.6%. The Fed’s projections point to one more hike this year to 4.1%, which would narrow the rate gap.
Attention turns to RBA Governor Bullock’s speech on Thursday at 23:30 GMT, the only domestic event ahead of the 29 September decision. US catalysts include housing starts and jobless claims on Thursday at 12:30 GMT, a Fed governor at 07:30 GMT on Friday, and industrial production at 13:15 GMT. Technical markers place resistance at the 50-day EMA near 0.7100, then 0.7150 and 0.7250, while support is just above 0.7050 and then 0.7000. Momentum indicators show the Stoch RSI at 49 and falling, and the pair has retraced about 40% of its early-July to early-September rally.
Bearish Momentum for the Australian Dollar
We expect the Australian Dollar to keep sliding in the coming weeks, especially now that AUD/USD has broken below its 50-day moving average of 0.7100. Derivative traders should look to establish short positions, targeting the immediate support level at 0.7050 with a secondary target of 0.7000. Momentum indicators like the daily Stoch RSI show there is still plenty of room for the market to fall before it becomes oversold.
Our bearish outlook is backed by weak fundamentals in global commodity markets, where iron ore prices have dipped near $90 per metric ton this month. Furthermore, China’s manufacturing sector remains weak, with its latest official purchasing managers’ index (PMI) sitting in contraction territory at 49.1. Because Australia relies so heavily on Chinese demand for its metal exports, this ongoing economic slowdown continues to drag the Aussie down.
Even though the RBA’s interest rate of 4.35% is higher than the Fed’s new 3.75-4.00% range, we are seeing that this yield gap no longer protects the Aussie. Instead, the market is treating the currency as a proxy for global economic growth, which is currently losing steam. We advise against buying the dips based on interest rates alone, as the Fed’s plans for another rate hike will soon narrow this yield gap anyway.
Derivative and Trading Strategies
For derivative strategies, we recommend buying near-the-money put options expiring in early October to capture this downward momentum with limited risk. Futures traders can sell AUD/USD on minor rallies toward 0.7100, keeping a tight stop-loss just above the 0.7150 resistance level. Any daily close above 0.7150 would signal that the bearish trend has paused, and we should quickly exit our short positions.
We need to keep a close eye on RBA Governor Bullock’s speech on Thursday and the upcoming US economic data, which could trigger sharp market moves. With a quiet domestic calendar ahead of the September 29 RBA rate decision, US indicators like jobless claims and industrial production will likely dictate the pair’s direction.
