The Australian dollar was steady against the US dollar on Thursday, hovering near 0.6900 after falling nearly 4% in June. AUD/USD stayed within a roughly 65-pip band, with dips checked at 0.6865, while rebounds have been capped below 0.6930.
Domestic releases offered little support as Australia’s May trade balance unexpectedly swung to an AUD 3,018 million deficit, compared with forecasts for an AUD 2,200 million surplus and after April’s AUD 1,791 million surplus. Exports fell 6.9% after a 7.2% rise in April, while imports increased 2.6% following a 0.2% gain the month before, widening the shortfall. The US dollar held firm ahead of June’s Nonfarm Payrolls report, with markets looking for 110K jobs versus guidance that readings above 100K would reinforce expectations of Federal Reserve tightening. Fed Chair Kevin Warsh said price risks were easing while reiterating a commitment to a 2% inflation target, supporting a view of a potential September rate rise.
Australian Dollar Weakness and Domestic Pressures
The Australian dollar is struggling to hold its ground around the 0.6650 level as we head into July. We’ve seen it consolidate recent losses after dropping more than 3% against the US dollar in June. This sustained weakness presents clear opportunities for derivative traders positioning for further downside.
Australia’s domestic picture is not helping, with the latest monthly CPI data showing inflation ticked up again to 3.8%. This puts their central bank in a difficult position, unable to hike without hurting growth, which weighs on the currency. We believe this domestic uncertainty will continue to cap any potential Aussie rallies in the coming weeks.
Dollar Strength and Trading Strategies
Meanwhile, the narrative of US economic outperformance is getting stronger, fueling demand for the dollar. Foreign investment into the US tech sector rose 15% over the last year, largely thanks to the ongoing boom in AI infrastructure. This constant flow of capital provides a strong underlying bid for the greenback.
The Federal Reserve’s ‘higher for longer’ stance from its June meeting is also a major factor supporting the dollar. All eyes are now on tomorrow’s Nonfarm Payrolls report, where expectations are for another solid print around 160,000 jobs. A strong number here would almost certainly lock in market expectations for Fed policy and push the dollar higher.
Considering this backdrop, we are looking at buying downside protection on the Aussie through put options. Volatility has been relatively low, making options an attractive way to position for a potential break below the 0.6600 support level following the jobs data. This strategy allows us to capitalize on further weakness while defining our risk.
