Australian Dollar Outlook: AUD/USD Eyes May High Ahead of US CPI

A hot Nonfarm Payrolls report saw traders reprice the potential for a September Fed hike, making this week’s CPI and PPI figures all the more important. Fed funds futures are now back above a 60% probability of a 25bp hike in two weeks, after 162k jobs were added compared with the 53k expected.

We also have a 30-year Treasury auction which may garner more attention than usual, given the bouts of market volatility whenever its yield pushes above 5.3%. The last time it did, Treasury Secretary Scott Bessent doubled the size of long-end Treasury buybacks to provide greater liquidity support. The auction will therefore test whether investors are comfortable absorbing long-duration debt around current yields, or whether they demand an even higher premium.

Despite the renewed Fed risk, AUD/USD remains above 72c and within reach of its May high. That leaves US inflation, Treasury yields and broader risk appetite as the main near-term drivers for the Australian dollar.

 

 

 

Australia This Week: Economic Data and Events for AUD/USD Traders

 

Australia’s slowing GDP seems unlikely to derail bets of another RBA hike, with cash rate futures having fully priced in a 25bp move by November. The 1-year OIS has fully priced in two. So attention will shift to comments from RBA’s Hunter and Hausser on Tuesday to see if any policy clues are dropped. My guess is that they’ll retain a slightly hawkish tone without committing to much more.

Consumer and business confidence seems likely to show evidence of RBA-hike concerns. Beyond that, it seems appetite for risk and the US dollar’s direction via CPI and bond auction results could be the key driver for the Australian dollar this week.

 

 

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

AUD/USD Correlation Analysis

• US dollar sensitivity has snapped back: AUD/USD’s correlation with USDX is -0.92 over 10 days and -0.94 over three days, making USD direction the dominant near-term driver.
• The yuan remains the most consistent positive relationship: CNH/USD correlations sit at 0.75–0.84 across 3, 10 and 20-day windows, reinforcing China/yuan sentiment as an important AUD/USD input.
• Risk and commodity correlations have surged very recently: three-day correlations with the S&P 500 (0.99), gold (0.95), WTI (0.94) and copper (0.87) suggest AUD/USD is currently trading with a strong risk-on/commodity beta.
• Short-term relationships remain fluid: several 20-day correlations are weak despite much stronger 3- and 10-day readings, so traders should favour the relationships currently strengthening rather than rely on longer-term averages.

Source: LSEG

 

AUD/USD Futures Positioning: COT Report

It is more of the same story where futures exposure is concerned for the Aussie. Traders have continued to increase their longs and shorts at a gradual pace, effectively keeping net-short exposure near similar levels to the week prior, albeit a touch less bearish.

This suggests traders continued to hedge their bets despite AUD/USD climbing above 72c to a 16-week high. The more reliable signal is therefore price action and rising total open interest, which now sits at a record high. This shows us that demand for Australian dollar exposure from all participants combined is rising alongside AUD/USD prices.

Source: CFTC (COT) CME, LSEG

 

 

 

 

AUD/USD Options and Volatility Analysis (Risk Reversals, HVN Levels)

Implied volatility has continued to trend lower while prices have moved higher in recent weeks, while 1-month IV remains above 1-week IV to show a calm confidence in the bullish trend. A small bullish engulfing week also formed, although with the May high nearby, the rally may be maturing to the point that it needs a pause or pullback. The daily chart shows AUD/USD held up well to the strength of NFP on Friday by closing flat, although it formed a doji which shows some hesitation from bulls to push higher immediately.

The AU-US 2-year spread edged lower, though not at an alarming rate. Risk reversals also curled slightly higher last week to show a modest pickup in call demand relative to puts, so options traders are not panicking about a deep pullback.

Overall, AUD/USD still has the potential to rise towards the May high and eventually break above it. How US data lands this week could simply determine whether we see an initial pullback or a direct move towards it first.

Source: ICE, TradingView

 

 

Australian Dollar Performance

Australian dollar performance table shows AUD gains across most major crosses, while AUD/JPY underperforms over five and 10 days.

Source: LSEG