Economic Indicators and Market Movement

The AUD/USD exchange rate steadied above 0.6500 after China’s trade surplus data came in lower than expected. Initially, the pair rebounded by 0.80% to 0.6520 following earlier losses but showed little movement after the release of China’s September Trade Balance data. China reported a trade surplus of $90.45 billion, falling short of the expected $98.96 billion. In terms of trade, China’s exports rose by 8.4% compared to last year, and imports increased by 7.5%. This suggests a recovery that could bolster the Australian Dollar, given Australia’s strong export links to China. However, trade tensions remain. US President Trump threatened tariffs but later eased his tone, which calmed market worries somewhat. On the other hand, China warned it would retaliate if tariffs were imposed. The ongoing US government shutdown is also putting pressure on the US Dollar, benefiting risk-sensitive currencies like the AUD. The Reserve Bank of Australia (RBA) is taking a strong stance, anticipating higher inflation, which supports the AUD. The RBA has indicated that it needs more time to consider any rate cuts. Now, the market is looking ahead to the upcoming RBA policy meeting minutes for insights on their monetary policy. The Australian Dollar’s performance has been mixed against major currencies, showing the strongest gains against the Japanese Yen. A heat map is available, displaying percentage changes across different currencies. The Australian dollar is gaining support from the Reserve Bank of Australia’s firm approach, as they are cautious about Q3 inflation being too high. This is a stark contrast to the US dollar, which is struggling due to the ongoing government shutdown, now in its third week. Historically, long shutdowns, like the 35-day one from 2018-2019, have negatively impacted the greenback.

Trade Dynamics and Policy Outlook

China’s demand for Australian resources is crucial for our outlook, as September 2025 import data shows a notable 7.5% year-over-year increase. Recent figures from China’s customs agency reveal that iron ore shipments from Australia reached a yearly high last month. This strong demand supports the Aussie, even if trade surplus figures fall short of expectations. The biggest risk is the unpredictable US-China trade situation, as any escalation could quickly erase the Aussie’s gains. Given the mixed signals of strong fundamentals versus geopolitical risks, implied volatility in AUD/USD options has risen to 9.8%, up from an average of 8.5% last month. Traders may want to consider options strategies to prepare for significant market moves, especially with the November 1 tariff deadline approaching. We are especially focused on Tuesday’s release of the RBA’s latest meeting minutes, which should provide more clarity on their policy direction. We will be looking for specific mentions of their inflation forecasts, especially since the Q2 2025 CPI came in above their target band at an annualized 3.8%. Confirmation of a hawkish stance could serve as a catalyst for a further rise in AUD/USD. Create your live VT Markets account and start trading now.

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