AUD/USD dropped by 0.31% after reaching a two-week high, driven by a stronger US Dollar. The pair fell below 0.6600 after a recent inflation report lowered expectations for a rate hike by the Reserve Bank of Australia (RBA). As of Friday’s Asian session, AUD/USD was trading at 0.6552. The technical outlook suggests potential movement toward the 100-day and 20-day Simple Moving Averages (SMAs) at 0.6535/32. The Relative Strength Index indicates bearish momentum, nearing the 50-neutral line. If the price falls below 0.6533, it could continue downward to 0.6400, with support near the 200-day SMA at 0.6443.

Potential Downside Targets

If the price moves decisively below 0.6443, it could drop to the June 23 low at 0.6372. On the other hand, breaking above 0.6561 could lead to testing the 0.6600 level, possibly reaching the October 29 high of 0.6617 and even 0.6650. This month, the Australian Dollar has shown mixed performance against major currencies but has been notably strong against the Japanese Yen. The AUD/USD pair has retreated from its recent high near 0.6617, confirming the US dollar’s renewed strength. This shift followed last week’s US Non-Farm Payrolls report, which showed an unexpected gain of 255,000 jobs, supporting the Federal Reserve’s aggressive stance. The current trading level for the pair is 0.6552, and it seems to be trending downward. On Australia’s side, the chances of another RBA rate hike are decreasing. The quarterly CPI data released yesterday showed a year-over-year increase of 4.2%, just below the 4.3% consensus and a slight drop from the previous quarter. This gives the RBA the flexibility to stay put, especially as global demand for key exports like iron ore has weakened.

Trading Strategy Options

For traders expecting further declines, buying December expiry put options with strike prices around 0.6450 is an appealing strategy. This allows participation in potential moves toward the 200-day SMA at 0.6443, with defined risk. The cost of these options is reasonable, as implied volatility is near the midpoint of its twelve-month range. A more cautious strategy would be to implement a bear put spread to lower upfront costs. One could buy a 0.6500 strike put and sell a 0.6400 strike put for the same December expiration. This positions for a gradual decline while limiting potential gains if the pair falls below 0.6400. We should monitor the 0.6533 level, which coincides with the 100-day and 20-day SMAs. A sustained break below this level would likely speed up the downward trend toward the 200-day SMA. Alternatively, any rally that exceeds the 0.6617 high would indicate that the current dollar strength might be short-lived, prompting a reevaluation of bearish positions. Create your live VT Markets account and start trading now.

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