The Australian dollar extended a fourth day of weakness, with AUD/USD hovering near 0.7000 after failing to hold September peaks around 0.7240 and testing the 200-day SMA near 0.7015–0.7022. The move came as the US dollar stayed supported by expectations of further Fed tightening later this year. In Australia, PMI readings softened, with Manufacturing at 49.3 and Services at 51.4 in September versus 52.0 and 53.2, while the trade surplus ran at A$1.923 billion in July after A$2.341 billion in June. GDP rose 0.4% QoQ in Q2 2026 versus 0.3%, but slowed to 2.1% YoY from 2.5%; unemployment increased to 4.6 even as employment rose 39.5K after a near-16K fall. Inflation eased to 3.5% from 3.8%, the Trimmed Mean held at 3.6%, expectations were steady at 4.9%, and the RBA still sees a return to its 2%–3% band in early 2028.
China data were mixed: GDP grew 4.3% YoY in April–June, Industrial Production rose 5.2% YTD and the July trade surplus widened to $119.1 billion, while Retail Sales increased 0.4% YoY. Official PMIs showed Manufacturing at 49.8 from 49.2 and Services unchanged at 49.0, while RatingDog printed Manufacturing at 51.5 from 50.9 and Services at 51.4 from 50.4. CPI accelerated to 0.8% YoY from 0.5% and rose 0.4% m/m; Producer Prices were up 3.8% after 3.5%, and the PBoC kept Loan Prime Rates at 3.00% (one-year) and 3.50% (five-year). The RBA held the OCR on 11 August and discussed a 25 bp rise; markets price about 42 bp of tightening by year-end and a 25 bp move on 29 September. Technical levels flagged include 0.7014 spot, RSI near 33 and ADX around 26, with resistance at 0.7073, 0.7079, 0.7081, 0.7278–0.7283 and 0.7661, and support at 0.7007 then 0.6922, as well as 0.6833, 0.6660, 0.6593, 0.6414 and 0.6373. CFTC data for the week to 15 September showed net shorts near 39K, a 4-week change around 5.2K, open interest about 494.1K, exposure at -7.9% versus -7.7%, percentile 83.9 and a Net Position Percentile of 68.1.
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Derivative Strategies Amid RBA and US Dollar Dynamics
We recommend that derivative traders prepare for a volatile few weeks as the Australian Dollar hovers just above the critical 0.7000 threshold. With the Reserve Bank of Australia set to decide on interest rates on September 29, we believe utilizing short-dated options is the most prudent way to hedge against immediate downside risks. If the pair breaks cleanly below the 200-day Simple Moving Average at 0.7022, we should expect a rapid acceleration toward the next major support level at 0.6833.
This bearish pressure is heavily reinforced by a surging US Dollar, which continues to draw strength from high Treasury yields and persistent geopolitical tensions. For instance, the benchmark US 10-year Treasury yield has recently pushed back toward the 4.2% mark, making the greenback highly attractive compared to risk-sensitive assets. We expect this yield premium to keep the AUD/USD heavily capped under the key resistance zone of 0.7073 in the coming weeks.
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China’s Limited Support and CFTC Sentiment Signals
Furthermore, we cannot count on China to rescue the Australian Dollar despite some stabilization in its industrial sector. China’s sluggish retail sales growth of just 0.4% year-on-year highlights weak domestic demand, which directly impacts Australia’s resource exports. With global iron ore prices remaining highly sensitive to this Chinese slowdown, the commodity-linked Aussie currency faces structural headwinds that favor maintaining a short bias.
We must also pay close attention to the latest CFTC positioning data, which shows speculative net shorts rising to nearly 39,000 contracts as open interest climbed to 494,100 contracts. This combination of rising open interest and deepening short positions indicates that institutional market participants are actively building fresh bearish bets rather than simply exiting old trades. Consequently, we advise derivative traders to consider buying out-of-the-money put options to capture a potential breakdown below the psychological 0.7000 floor.
