AUD/USD traded around 0.7160 on Monday, with the US Dollar firming after stronger US factory data and the Australian Dollar weighed down by a more defensive tone in markets. The ISM Manufacturing PMI rose to 54 in May from 52.7 in April, beating forecasts of 53 and pointing to faster expansion in US manufacturing.
Geopolitics also fed demand for the Greenback after reports that Iran halted message exchanges with the US following attacks on Lebanon, reviving concerns about wider Middle East tensions. On the four-hour chart, the pair was at 0.7161, holding above the 20-period SMA at 0.7156 but limited by the 100-period SMA at 0.7175, while the RSI sat at 50.0. Resistance was seen at 0.7163 and then 0.7175, with support levels at 0.7156, 0.7152 and 0.7148 ahead of 0.7135; a break beyond the 0.7135–0.7175 range would set the next move.
Macroeconomic Divergence and Commodity Headwinds
The stronger-than-expected US manufacturing data confirms our view of a robust American economy. This divergence supports a stronger dollar, especially when compared to Australia’s central bank, which remains on hold. We see the interest rate difference between the two countries as a primary driver pushing the AUD/USD pair lower.
Weakness in key commodity prices is also weighing on the Australian dollar. Iron ore futures, a crucial Australian export, have fallen over 5% in the last month to trade near $108 per ton, reflecting slowing industrial demand. This trend directly impacts Australia’s export earnings and currency valuation.
Technical Considerations and Trading Strategy
Given the technical consolidation between 0.7135 and 0.7175, we are looking at options strategies that benefit from a potential downward move. The pair is currently coiled, and a break below support seems more likely given the fundamental pressures. We anticipate an increase in volatility around key data releases.
We believe buying AUD/USD put options with a strike price around 0.7100 offers a good risk-to-reward setup for the coming weeks. This allows us to profit from a move below the current support level. The upcoming US jobs report this Friday will be a critical catalyst that could trigger this move.
This situation is reminiscent of late 2022, when aggressive Fed policy consistently strengthened the dollar against commodity currencies. Traders who positioned for dollar strength back then were well-rewarded. The current setup of strong US data against a cautious global backdrop presents a similar opportunity.
