The Australian dollar extended its slide against the US dollar for a fifth straight session on Monday, trading just under 0.7000 at 0.6996 and edging towards an 11-week low of 0.6979. Price action remained mildly bearish after the break below the 0.7000 threshold, while 4-hour momentum signals kept pointing down: the RSI sat around 38 and the MACD stayed in negative territory.
The currency’s risk-sensitive profile was tested by developments in US-Iran talks, where mediators reported progress and both sides committed to ending hostilities on all fronts and reopening the Strait of Hormuz, although comments from US President Donald Trump about “take over” Iran unsettled negotiations on Sunday. In rates, the Federal Reserve’s hawkish hold last week supported the greenback, while the Reserve Bank of Australia paused after three consecutive hikes this year but kept the option of further tightening. Traders watched support at June’s 0.6979 low, with a break exposing the April 7 trough near 0.6900, while resistance was seen near 0.7040 and then around 0.7090.
Put Option Strategies in a Bearish AUD/USD Market
We see the Aussie dollar struggling below the 0.7000 mark against a strong greenback, marking the fifth straight day of losses. This suggests a good opportunity for us to consider buying put options. These options would profit if the AUD/USD continues its slide in the coming weeks.
The US Federal Reserve’s hawkish stance is the main driver, supported by recent data showing US core inflation holding firm at 3.1% and unemployment at a low 3.7%. In contrast, Australia’s latest inflation report showed a cooling to 2.8%, giving the Reserve Bank of Australia room to stay on hold. This growing policy difference puts downward pressure on the currency pair.
We are closely watching the 0.6979 support level for a decisive break. If that happens, our models anticipate a move towards the 0.6900 area. Therefore, we are looking at July or August puts with strike prices around 0.6950 to capitalize on this expected move.
Risk Management and Alternative Scenarios
This situation is reminiscent of the 2022-2023 period when aggressive Fed tightening consistently pushed the AUD/USD lower. The current geopolitical uncertainty surrounding Iran is also increasing market volatility, as seen by the VIX index creeping up to 16.2 last week. This environment makes using options to define risk particularly attractive.
However, we must manage our risk in case of a surprise rebound driven by a breakthrough in diplomatic talks. If the pair breaks back above the 0.7040 resistance, our bearish view would be challenged. We might then consider buying some cheap, out-of-the-money call options with a 0.7100 strike as a hedge against a sharp reversal.
