AUD/USD drifted lower towards the 0.7000 handle on Monday, trading around 0.6997 as markets positioned for the US Personal Consumption Expenditures Price Index due on Thursday. A firmer PCE print would tend to underpin expectations of a hawkish Federal Reserve, bolstering the US dollar and leaning on the Australian currency. Separately, the People’s Bank of China kept interest rates unchanged, a backdrop that remains relevant given Australia’s close trade links with China.
On a four-hour view, the pair held a bearish bias below the 20-period and 100-period Simple Moving Averages, at roughly 0.7013 and 0.7075. Momentum gauges were also soft: the Relative Strength Index sat around 38, pointing to ongoing downside pressure. Resistance is first seen at 0.7002, then at 0.7013–0.7020, with the latter area aligning with the 20-period SMA; further up, the 100-period SMA near 0.7075 is another hurdle. Support is marked at 0.6995.
Inflation Data And Fed Policy Shape Australian Dollar Outlook
We see the Australian dollar struggling near the 0.7000 level as traders are hesitant before this Thursday’s key US inflation data. This Personal Consumption Expenditures (PCE) report is the Federal Reserve’s preferred measure, so it carries significant weight. A hot inflation number will likely strengthen the US dollar and push the AUD/USD pair lower.
The stakes for this PCE report are heightened by recent data showing US inflation remains persistent. For instance, the last Consumer Price Index (CPI) report for May 2026 registered a 3.5% year-over-year increase, coming in slightly hotter than expectations. This trend supports the view that the Fed will not be in a hurry to cut rates, creating a challenging environment for currencies traded against the dollar.
Strategy And Historical Precedent Support Bearish AUD/USD View
Given this, we are looking at buying put options on the AUD/USD pair with a strike price around 0.6950 or 0.6900 expiring in the next few weeks. This strategy allows us to profit from a potential drop below the key 0.7000 psychological level following the data release. The defined risk of an option is preferable to an outright short position in this potentially volatile market.
Adding to our bearish outlook is the recent softness in the Chinese economy, a critical factor for the Australian dollar. The latest Caixin Manufacturing PMI from early June 2026 dipped to 49.8, indicating a slight contraction in factory activity. Since Australia is a major commodity exporter to China, any weakness there directly dampens demand for the Aussie.
This situation mirrors the dynamic we saw in late 2022, when a hawkish Fed and concerns over China’s growth caused AUD/USD to fall from over 0.71 to below 0.65. That historical precedent shows how quickly this pair can decline under similar fundamental pressures. We are preparing for a potential repeat of that type of downside momentum.
The technical picture supports this cautious stance, as the pair remains capped below the 20-period moving average near 0.7013. We view this level as a critical resistance zone. Any failure to break above this area in the coming days would reinforce our strategy to position for a move down toward the 0.6900 handle.
