The Australian dollar fell 0.17% against the US dollar, ending Wednesday at 0.6971 after briefly pushing above 0.7000, as firmer US inflation lifted Treasury yields and revived expectations of another Federal Reserve rate rise later this month. September’s US CPI rose 3.7% year on year, beating forecasts and August’s 3.4%, while underlying CPI climbed to 2.6% from 2.4%, with energy, shelter and used vehicles among the drivers. Following the release, money markets lifted the implied probability of an October hike to 42% from 22% a day earlier, and pricing briefly touched 60% immediately after the data.
Attention now turns to Australia’s September labour market report, where payrolls are forecast to increase by 20K versus 39.5K in August, while the unemployment rate is seen steady at 4.6%, a five-year high. The Reserve Bank of Australia has said labour conditions have eased as expected, and the US diary includes PPI, Retail Sales and Initial Jobless Claims plus further Fed communication. Technically, AUD/USD remains below the 0.7085 triple simple moving average, with RSI (14) at 40.8; support is flagged near 0.6946 and resistance spans 0.7085–0.7087, then 0.7111, 0.7118 and 0.7198.
Short-Term Downside Positioning in AUD/USD
We should position for short-term downside in the Aussie Dollar as higher-than-expected US CPI numbers push the Federal Reserve toward another potential interest rate hike. With US annual inflation climbing to 3.7% and core inflation reaching 2.6%, derivative traders ought to consider put options or short futures positions on the AUD/USD pair to capitalize on US Dollar strength. Historical data shows that unexpected spikes in US inflation typically trigger multi-week rallies in the Greenback, as traders rapidly price in tighter monetary policy.
In the options market, we should look at purchasing downside protection with strike prices aimed below the immediate support level of 0.6946. Given that the Relative Strength Index sits at 40.8, the pair is displaying weakening bullish momentum without being oversold, which leaves ample room for further declines. Establishing bear put spreads can help lower premium costs while targeting potential drops toward the mid-0.6800 range.
Event Risk Management and Trading Strategies
We must remain vigilant ahead of the upcoming Australian employment report and US retail sales releases. While Australia expects to add roughly 20,000 jobs, any miss could cause a sharp drop in the Aussie Dollar given that unemployment is already elevated at 4.6%. Derivative traders can hedge against this upcoming economic event risk by using short-dated straddles or strangles to capture sudden moves in implied volatility.
On the resistance side, any temporary rallies back toward the 0.7000 to 0.7085 band should be treated as selling opportunities rather than breakout signals. As long as AUD/USD trades below its triple simple moving average, upside call options carry poor risk-reward profiles for buyers. We recommend setting tight stop-loss orders above 0.7118 on any short positions to protect against unexpected dovish shifts from Fed speakers.
