The Australian dollar steadied after an early rebound, with AUD/USD around 0.6970 in European trading on Wednesday, though it remained down 0.19% near 0.6970. Buying interest appeared near 0.6958 following a soft open after August CPI data came in hot, keeping attention on further tightening by the Reserve Bank of Australia, which has lifted rates by 100 bps to 4.6% so far this year. The CPI report showed inflation rising to 4% YoY in August, as expected, from 3.5% in July, while market pricing continued to point to 1.5 additional RBA rate hikes.
The US dollar also traded weaker ahead of US ADP Employment Change for September and the PCE Price Index for August. On the daily chart, AUD/USD was at 0.6971, below the 20-day EMA at 0.7078 and under the 61.8% Fibonacci retracement at 0.7008, with the RSI at 29.2 in oversold territory. Resistance levels are marked at 0.7008, then 0.7052 and 0.7078, with further caps at 0.7096, 0.7150 and the cycle high anchor near 0.7238; support sits at 0.6946 and then 0.6866.
Near-Term Trading Setups and Technical Overview
We suggest derivative traders closely watch the 0.6970 level as the Australian Dollar shows signs of short-term exhaustion after its recent slide. With the Relative Strength Index (RSI) sitting in oversold territory at 29.2, we believe the immediate downside pressure may be overextended. This setup historically presents a strong opportunity for mean-reversion strategies, especially as the pair sits just above key support at 0.6946.
For the coming weeks, we recommend trading short-term AUD/USD call options with a strike price targeting the 61.8% Fibonacci resistance at 0.7008. If upcoming US employment and inflation data come in softer than expected, the US Dollar could weaken, pushing the pair back toward its 20-day exponential moving average at 0.7078. Historically, when the daily RSI dips below 30, the currency pair has a high probability of a short-term technical bounce within 5 to 10 trading days.
Risk Management and the Outlook for AUD
On the other hand, we must prepare for a breakdown if the Australian Dollar fails to hold the immediate support of 0.6946. In this scenario, purchasing put options targeting the 0.6866 level would protect against a deeper slide. This bearish move would likely be triggered if upcoming US economic data surprises to the upside, strengthening the greenback.
Our view is also shaped by Australia’s persistent inflation, which recently accelerated to 4.0% year-on-year, keeping pressure on the Reserve Bank of Australia to maintain its 4.6% cash rate. While some analysts doubt further interest rate hikes, Australia’s yields remain relatively attractive compared to global peers. We expect this yield support to limit deep losses for the Aussie dollar, making downside puts a strictly short-term hedge rather than a long-term trend play.
