The AUD/USD pair has fallen over 1%, approaching 0.6440 in the European trading session. This drop comes after Beijing announced new port fees for ocean shipping, which could harm Australia’s economy, heavily dependent on exports to China. In local news, the Reserve Bank of Australia kept its tight monetary policy during the September meeting and remained cautious about inflation. Markets are now eager for Thursday’s Australian employment data, which is expected to show an addition of 17,000 jobs after a loss of 5,400 in August.

US Dollar Strength

The US Dollar is getting stronger as trade tensions between the US and China ease. US Treasury Secretary confirmed that President Trump and Xi Jinping will meet soon. Now, all eyes are on Federal Reserve Chair Jerome Powell, who will speak at 16:20 GMT. His words could shape how markets view potential interest rate changes. The US Dollar is the most traded currency globally, making up over 88% of all foreign exchange transactions. The Federal Reserve controls it, and their policy decisions affect the Dollar’s value. When they use quantitative easing, the Dollar typically weakens, while quantitative tightening usually strengthens it. We’re seeing a notable decline in the Australian Dollar, mainly due to China’s new port fees. As China is Australia’s largest trading partner, making up over 32% of our total exports last year, this news is a real challenge. The immediate market reaction, dropping over 1% to near 0.6440, marks a significant shift against the Aussie. Traders in derivatives might want to set up short positions on the AUD/USD pair, aiming for a break below the 0.6400 level in the next few weeks. Buying put options could be a smart move to profit from further drops while managing risk. We haven’t consistently traded below this level since the early 2020s, making it an essential psychological support level to watch.

Event Risk

Thursday’s employment data will be crucial. While the market expects a gain of 17,000 jobs, the unemployment rate has already risen to 4.3% last month. Any signs of a weakening labor market could put more downward pressure on the AUD. If the actual numbers fall short, it would strengthen our bearish outlook on the AUD. The main risk to this position lies with the US Dollar, particularly depending on Powell’s speech today. While easing US-China trade tensions benefit the Dollar, the market is anticipating rate cuts. With the latest US Core CPI at 3.9%, slightly exceeding expectations, any hawkish comments from Powell could catch the market off guard and rapidly bolster the USD, further driving down the AUD/USD pair. Given the event risk surrounding Powell’s remarks, implied volatility is likely to rise. Using options strategies, such as a bear put spread, could be a wise way to maintain a bearish position on AUD/USD while limiting potential losses. This would provide protection against any surprise dovish shift from the Fed that could weaken the US Dollar. Create your live VT Markets account and start trading now.

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