The Australian Dollar (AUD) is expected to weaken further, but oversold conditions may prevent it from reaching the 0.6520 level today. Recently, the AUD rose to 0.6612 before dropping to 0.6540, which also serves as a support level. To maintain momentum, the AUD needs to stay below 0.6595, with minor resistance at 0.6575. In the long run, the AUD is likely to continue declining toward the late-September low around 0.6520. As of October 6, the AUD was trading in a neutral range between 0.6555 and 0.6540, but it has gained momentum since then. The chance of the AUD falling below 0.6555 has increased, supported by a recent low at 0.6540. The strong resistance has shifted to 0.6615 from 0.6630.

Fxstreet Insights Team

The FXStreet Insights Team consists of journalists who gather market observations from various experts. Their work includes expert notes and insights from both internal and external sources. The downward momentum seen earlier this week appears to be continuing, indicating more weakness for the AUD/USD pair. Our assessment from Wednesday about a break below 0.6555 proved accurate, as the pair hit a low of 0.6540. We are now focusing on the late-September low near 0.6520 as the next target in the weeks ahead. This bearish outlook is supported by fundamental factors beyond just the charts. The Reserve Bank of Australia took a cautious approach in its recent meeting, indicating a pause in its rate-hiking cycle due to concerns about global growth. Meanwhile, US inflation data for September, released yesterday, was slightly higher than expected at an annualized 3.8%, raising the likelihood of another Federal Reserve rate hike this year.

Commodity Linked Currency Pressure

As a currency linked to commodities, the Aussie dollar is under pressure from falling iron ore prices, which have dipped below $110 per tonne. This decline follows recent data that shows a slowdown in Chinese industrial activity, a crucial factor for Australian exports. The contrast between a dovish RBA and a hawkish Fed indicates ongoing weakness for the AUD. For derivative traders, this market environment suggests that buying AUD/USD put options is a smart strategy. A put option with a strike price around 0.6550 and an expiration in late October or November would allow traders to profit from a decline toward the 0.6520 target. This method offers downside exposure while limiting risk to the premium paid for the option. A more conservative approach is to implement a bear put spread: buying a 0.6550 put while selling a 0.6500 put. This strategy helps finance the position and lowers the initial cash investment, but it limits potential profit while increasing the chances of success if the pair moves slightly lower. We should monitor the strong resistance level now at 0.6615 as a key risk marker for these bearish positions. A sustained break above this level would indicate that the downward momentum has weakened, prompting us to unwind short positions and reassess the bearish outlook. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now