Australian Monetary Policy Focus

All eyes in Australia are on Reserve Bank of Australia Governor Michele Bullock, who is set to speak at 22:00 GMT. Her comments are expected to shed light on future monetary policy. The RBA has kept its cash rate steady at 3.60%, signaling ongoing inflation concerns. Data from the University of Melbourne shows that one-year inflation expectations in Australia climbed to 4.8% in October, up from 4.7% in September. This persistent inflation may shape the RBA’s decisions in their next meeting. As a result, the short-term outlook for the AUD/USD pair remains uncertain, heavily reliant on Bullock’s speech and trends in the US Dollar. The Australian Dollar has fallen to 0.6550, indicating stronger US Dollar influence. With the US Dollar Index nearing multi-month highs, the AUD/USD pair is likely to face downward pressure. We should be ready for this trend to continue and keep a close eye on Governor Bullock’s upcoming speech for potential short-term volatility. The US Dollar’s strength isn’t surprising, especially with the latest US CPI data for September showing a stubborn 3.9%, well above the Federal Reserve’s target. This inflation reading raises doubts about the softening signals from last month’s FOMC meeting minutes. Consequently, major investors are increasing bearish options on currencies like the Euro and Yen, a move that will likely keep the US Dollar strong.

Trading Strategies and Considerations

In the coming weeks, it may be wise to buy AUD/USD put options to guard against or profit from a decline toward the 0.6400 level. If Governor Bullock’s speech doesn’t sound decisively hawkish, the Australian Dollar may struggle under the weight of the US Dollar’s strength. Another effective strategy could be selling out-of-the-money call options to collect premiums, as any price rallies could be limited. Recall the significant fluctuations in this pair in late 2023 and early 2024 when central bank policies diverged. The current situation feels similar, suggesting that implied volatility might be undervalued. The 0.6500 level is crucial, representing key psychological support that held during the volatility seen in the third quarter of 2024. Positions should be managed carefully around the RBA event risk. While the broader strategy leans toward being short the Australian Dollar, an unexpectedly aggressive tone from Governor Bullock could spark a sharp, though likely temporary, rally. A flexible approach using short-dated options may be the best way to navigate the immediate aftermath of her comments. Create your live VT Markets account and start trading now.

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