The AUD/USD has crossed an important resistance level at 0.6600, reaching its highest level since August 2024. This upward movement is driven by improved risk sentiment in financial markets due to reduced trade tensions, rising iron ore prices, and strong growth in Australia’s private sector. Australia’s composite PMI rose to 53.6 in July from 51.6 in June, the highest level since April 2022. This growth was mainly fueled by an increase in services and a return to manufacturing expansion.

RBA Strategy for Monetary Policy

RBA Governor Michele Bullock confirmed the bank’s plan for a “measured and gradual approach” in easing monetary policy. While she recognized the weak June labor report, Bullock mentioned there’s no immediate rise in the unemployment rate expected. The RBA expects the trimmed mean inflation rate will be 2.6% year-on-year in Q2, down from 2.9% in Q1. The bank is likely to begin easing on August 12, with futures indicating a 25 basis points cut in August and a total of 75 basis points over the coming year. We view the break above 0.6600 as significant, largely due to strong external factors like iron ore prices, which have stabilized above $110 per ton. However, this trend opposes the central bank’s intention to ease policy, creating a challenging trading atmosphere where momentum and fundamentals conflict.

Strategies for Uncertain Market Conditions

With positive economic signals, such as the composite PMI reaching a two-year high, we recommend buying call options as a smart short-term strategy. This allows traders to benefit from further upward movement while limiting their risk to the premium paid. A low CBOE Volatility Index (VIX), currently around 13, supports this positive sentiment for now. As the August 12 policy meeting approaches, all eyes will be on the governor’s future guidance. Often, a well-communicated rate cut leads to a “sell the news” reaction if the statement is more dovish than expected. We are closely monitoring the interest rate differential, as the CME FedWatch Tool indicates that the market anticipates a U.S. Federal Reserve cut by September. This makes the policy paths of both banks very important. Given these mixed signals, we expect implied volatility to rise around the central bank’s decision. For those unsure of the market direction but anticipating a big move, we suggest strategies like a long straddle, which involves buying both a call and a put option. This approach profits from significant price changes in either direction after the announcement, shielding a trader from having to predict the outcome accurately. Create your live VT Markets account and start trading now.

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