Traders are eager for two major announcements tomorrow: the Reserve Bank of Australia’s (RBA) rate decision and the US Consumer Price Index (CPI) report. Key information that will affect the Australian Dollar (AUD) includes the Australian Wage Price Index and employment report. Recently, the US Dollar (USD) has lost strength due to disappointing data from the Non-Farm Payrolls (NFP) report. The market now expects a decrease of 58 basis points in rates by the end of the year, up from the previous forecast of 35 basis points.

Focus On Inflation Data

The US CPI report is attracting attention. Many now believe a rate cut could happen in September unless inflation data suggests otherwise. For the AUD, inflation has decreased, leading to a possible RBA rate cut tomorrow. If labor market data shows further weakness, markets predict at least two more cuts by the end of the year. Looking at AUDUSD technical analysis, the daily chart shows prices are between two key levels. The 4-hour chart displays a small upward trendline, while the 1-hour chart shows trading near a minor support zone. If the price falls below current support, sellers might target the 0.6485 support level. Key upcoming events include the RBA’s rate decision, US CPI, Australian Wage Price Index, and employment data. These developments are expected to significantly influence market sentiment and future predictions. We are preparing for a busy week focused on the US inflation report and the RBA’s rate decision tomorrow. The US dollar has struggled since the July Non-Farm Payrolls report, which revealed a disappointing figure of 155k, changing expectations for rate cuts.

Expectations And Strategies

The market is now anticipating a higher chance of a Federal Reserve rate cut by year-end, with fed funds futures suggesting almost a 70% likelihood of a September move. Following a small dip in core inflation in June 2025, another weak CPI tomorrow would likely encourage a dovish message from the Fed at Jackson Hole later this month. We believe a surprisingly high inflation figure, above 0.4% month-over-month, would be needed to change this outlook. On the Australian front, we expect a rate cut from the RBA tomorrow, a move the markets have already priced in. This follows the latest data showing second-quarter 2025 inflation dropped to an annual rate of 3.1%, continuing the downtrend from the previous quarter. Market reaction will depend on the RBA’s guidance for future cuts. For derivative traders, this situation creates the potential for increased volatility. Buying short-dated straddles or strangles on AUDUSD, set to expire just after this week’s data, could be a smart way to prepare for sharp price movements in either direction. This strategy benefits from significant swings, whether caused by the RBA or the US CPI. Currently, 1-week implied volatility for AUDUSD options has risen to over 14%, much higher than the 9% average during July 2025. This suggests a breakout is likely, but also makes buying options more costly. Selling options could be risky now but may become a good strategy if key events conclude without major changes in direction. From a tactical view, the technical levels indicate clear strikes for option trades. A drop below the 0.6512 support level could activate put options, targeting strikes around 0.6485 or lower. On the other hand, traders with call options will hope that this support holds firm, allowing them to push towards higher resistance levels. Looking ahead, Australian employment figures and US retail sales data later this week will play a vital role in establishing any new trends. This data will impact pricing for options with longer expirations, such as those in September and October. Continued weakness in both economies could lead to a range-bound scenario for the currency pair. Create your live VT Markets account and start trading now.

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