AUD/USD Recovers as US Dollar Softens and RBA Remains Hawkish
AUD/USD edged higher in Thursday’s Asian trade, recouping part of the prior session’s drop below 0.7000 and lifting from a weekly low. The pair was changing hands around 0.7040, up nearly 0.40% on the day, as the US Dollar softened. The USD Index (DXY) eased from its highest level since late March, with the move linked to renewed optimism around a US-Iran deal to end the war and reopen the Strait of Hormuz. Separately, the Reserve Bank of Australia (RBA) kept a hawkish tilt by signalling further rate rises are possible if inflation stays elevated, while expectations of a US Federal Reserve (Fed) hike in December limited the downside for the greenback.
Technically, repeated failures near the 100-day Simple Moving Average (SMA) support breakpoint this week kept the bias tilted lower, and the pair remained under the 50% retracement of the March–May rise. Momentum gauges also leaned bearish: the Relative Strength Index (RSI) sat near 42, while the Moving Average Convergence Divergence (MACD) was slightly negative. Resistance was flagged at the 50% retracement near 0.7054, then the 100-day SMA around 0.7085, with the 38.2% Fibonacci level at 0.7106 and the 23.6% mark near 0.7171. Support levels were cited at the 61.8% Fibonacci point of 0.7002, followed by 0.6928 at 78.6% and a prior swing low near 0.6834.
Fundamental Drivers Behind AUD/USD Movement
We’re seeing AUD/USD recover towards 0.7040 after its dip below the 0.7000 mark. This is mostly due to a softer US dollar, with the DXY pulling back from its early June highs above 105.5 to around 105.1. This weakness comes from renewed optimism surrounding US-Iran diplomatic talks, which is reducing the dollar’s safe-haven appeal for now.
We also see support for the Aussie dollar from the Reserve Bank of Australia’s recent hawkish tone. With the latest quarterly CPI data showing inflation is still at 3.8%, well above the RBA’s target, the market is pricing in the possibility of further rate hikes. This fundamental pressure provides a floor for the currency.
However, we believe any significant rallies will be capped due to expectations for the US Federal Reserve. The latest US jobs report came in stronger than expected, reinforcing the Fed’s case to keep rates higher for longer. In fact, the CME FedWatch Tool is now showing over a 65% chance of a rate hike by December, which should limit US dollar downside.
Technical Outlook and Trading Strategies
From a technical standpoint, we see this week’s failure to hold above the 100-day moving average near 0.7085 as a bearish signal. We would consider selling call spreads with a short strike above that 0.7085 level to take advantage of capped upside. This strategy allows us to profit if the pair stays below that resistance or moves lower, while defining our risk.
The key support to watch is the 0.7000 psychological level. If we see a decisive break below this, we would look to buy put options or establish short positions targeting the next support zone around 0.6928. Historically, breaks of major round numbers like 0.7000 can accelerate selling pressure.
