The Australian Dollar is falling against the US Dollar due to rising US Treasury yields, which favor the Greenback. After hitting a yearly high of 0.6625, the AUD/USD has dipped below 0.6600. The US Dollar is gaining strength, supported by President Donald Trump’s reassurances about the Federal Reserve’s actions. Trade talks between US and Chinese officials, as well as potential negotiations with the EU, are currently in the spotlight.

Federal Reserve’s Upcoming Rate Decision

People are closely watching the Federal Reserve’s next rate decision, with expectations that rates will remain between 4.25% and 4.50%. Profit-taking could contribute to the AUD/USD decline. The pair is currently forming an ascending wedge but hasn’t broken through resistance, indicating potential further drops. Key support is at 0.6550, with additional support at the 50-day SMA of 0.6508 and the July low of 0.6454. A rise above 0.6625 could trigger a breakout, aiming for the November high of 0.6687. The US Dollar plays a significant role in global trade, accounting for over 88% of forex turnover. Decisions by the Federal Reserve about monetary policy, interest rates, and quantitative easing greatly affect the dollar’s value, often leading to fluctuations. Quantitative tightening usually strengthens the US Dollar.

Bearish Positions and Strategies

With the Australian Dollar declining, traders should consider bearish positions using derivatives. The inability to stay above 0.6600, along with rising US Treasury yields, suggests the likelihood of further declines. Buying put options with strike prices below 0.6550 could effectively capitalize on this expected drop. The Greenback’s strength is backed by solid data, as the US 10-year Treasury yield remains above 4.2%, making dollar-denominated assets more appealing. Support for Federal Reserve policy reassurances, like those from the former president, reduces political uncertainty and boosts the dollar’s attractiveness. Upcoming trade discussions with Chinese and EU officials could introduce volatility, which can be managed through options. However, we should also consider conflicting signals, like Australia’s recent monthly CPI for April rising unexpectedly to 3.6%. This may cause the Reserve Bank of Australia to maintain a hawkish approach, potentially limiting the decline of the AUD/USD. In this context, a bear put spread strategy—buying a higher-strike put while selling a lower-strike put—might be a smart way to manage risk while still aiming for a moderate drop. The chart’s ascending wedge pattern indicates that a significant move may be coming. The 50-day SMA around 0.6508 is a key target for bearish strategies. Historically, when the Fed keeps interest rates high while other central banks hesitate, the dollar typically benefits; we are seeing that pattern develop again. To prepare for a possible reversal, a smaller, speculative trade could also be wise. If the price closes above the crucial resistance of 0.6625, it would invalidate the bearish outlook. To guard against this possibility or to take advantage of a breakout, traders might consider buying out-of-the-money call options with a strike price near the November high of 0.6687. Overall, market sentiment lines up with our analysis. Recent Commitment of Traders (CFTC) reports indicate that large speculators are increasing their net short positions on the Australian Dollar. This shows that institutional investors are betting on its continued weakness against the US Dollar. Create your live VT Markets account and start trading now.

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