AUD/USD hovered around 0.6880 on Monday, easing from Friday’s close as markets waited for near-term direction from Australia and China, while the US Dollar held firm ahead of US labour-market releases later this week. Reserve Bank of Australia Governor Michele Bullock appeared in Basel on a panel titled “From Cash to Stablecoins: The Anonymity of Money”, with attention turning to the official transcript due on Tuesday for any references to monetary policy, inflation or financial stability. Focus then shifts to the RBA Meeting Minutes, also due early Tuesday, after the Board kept the cash rate unchanged at 4.35% at the June meeting following an earlier 75-basis-point increase.
China’s NBS Manufacturing and Non-Manufacturing PMIs, due Tuesday, are expected to show manufacturing at 50.1 in June versus 50.0 in May, while services are seen at 49.9 compared with 50.1. In technical terms, AUD/USD traded at 0.6884 and stayed below the 20-period SMA at 0.6898 and the 100-period SMA at 0.7002, with overhead supply at 0.6886 and an RSI at 34.96. Resistance is cited at 0.6886, then 0.6904 and 0.6917, while support sits at 0.6878.
Bearish Outlook Driven by Australia, China, and US Data
We are watching the AUD/USD pair test levels around 0.6650 as it extends its recent downtrend. The primary drivers are recent weak Chinese economic signals and a firm US Dollar, with traders positioning cautiously ahead of this week’s key US labor report. This sets a bearish tone for the coming sessions.
The Reserve Bank of Australia’s recent decision to hold the cash rate at 4.35% is still influencing our view. While inflation has cooled to 3.6%, it remains stubbornly above the target band, suggesting the RBA will remain on hold longer than other central banks might. This policy divergence, especially with a hawkish Fed, weighs on the Aussie dollar.
China’s latest economic data is a significant headwind for the Australian dollar. The official NBS Manufacturing PMI unexpectedly slipped into contraction at 49.5, signaling weakening demand from Australia’s largest trading partner. We see this as a direct negative catalyst that will likely cap any significant rallies in the AUD/USD.
On the other side of the trade, the US Dollar continues to find support from expectations of a resilient labor market. After May’s strong report of over 250,000 jobs created, we anticipate the upcoming Non-Farm Payrolls data to confirm economic strength. This reinforces the view that the Federal Reserve will be in no hurry to cut rates, further strengthening the US dollar against the Aussie.
Derivative Positioning and Historical Context
Given this backdrop, we believe derivative traders should consider strategies that profit from further downside or range-bound price action. Buying put options on AUD/USD with expirations in late July or August offers a direct way to position for a drop towards the 0.6500 level. Alternatively, selling out-of-the-money call spreads could be effective to collect premium, assuming strong resistance holds near 0.6750.
Historically, sustained trends in this pair are often driven by monetary policy divergence, similar to the period in 2022-2023 when aggressive Fed hikes outpaced the RBA. We see a similar setup forming now, which could lead to a sustained depreciation in the Aussie through the third quarter. Therefore, we are looking for entry points on any minor rallies to initiate bearish positions.
