The Australian dollar is weakening due to disappointing employment data, raising expectations for a potential rate cut from the Reserve Bank of Australia. The AUDUSD pair displays a downward trend, affected by some strength in the US dollar, even though US inflation data came in softer than anticipated, with both Core CPI and Core PPI falling short. On the daily chart, the AUDUSD price has hit the upper trendline and is now moving lower. The main support zone is around the 0.6350 level, where buyers might step in and push the price up to 0.6900. However, sellers aim to break below this level to drive the price down to 0.6000.

AUDUSD Chart Analysis

On the 1-hour chart, there is a minor resistance level around 0.6485. Sellers might enter on a retest of this level, keeping risk controlled above it to target further declines. Meanwhile, if buyers break through this resistance, they could push prices back toward the upper trendline. Current market movements are based more on positioning than major changes in fundamental views. Given the downward trend, the minor resistance near 0.6485 presents an initial chance for bearish plays. The recent Australian jobs report was much weaker than expected, reinforcing this viewpoint. Markets now see over a 50% chance of a rate cut by the Reserve Bank of Australia by mid-2024, which is likely to keep pressure on the currency. Although the strength of the US dollar is surprising, it shouldn’t be overlooked, even as core inflation has cooled to a 3.2% annual rate. We think this is more about unwinding crowded positions rather than a fundamental response. Thus, caution is advised when betting on a significant AUDUSD rally based solely on softer US inflation data.

Key Support and Trading Strategies

We see similarities with the trading strategy used against the New Zealand dollar. For over a year, markets anticipated more aggressive rate cuts than the RBNZ delivered, which affected the currency despite a slower pace from the central bank. We expect a similar situation might occur with the Australian dollar, implying a sustained period of weakness or consolidation. The critical level to monitor is the support zone around 0.6350. As we near this area, we’ll look to set up trades that could benefit from a price bounce, like buying call options with a target around 0.6900. The defined risk below this support makes this strategy appealing from a risk-reward standpoint. However, if this support fails, it would signal a strong bearish move. A clear break below 0.6350 would prompt us to shift our focus to strategies that profit from further declines. In that case, we might consider buying puts, targeting a drop toward the 0.6000 level. Create your live VT Markets account and start trading now.

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