The Australian Dollar has risen slightly against the US Dollar, thanks to improved trade hopes between the US and China. Predictions of interest rate cuts by the Federal Reserve in October help boost this trend. The AUD/USD pair is up by 0.35%, trading around 0.6520, driven by positive news about easing trade tensions between Washington and Beijing. Comments from US President Donald Trump about unsustainable high tariffs raise hopes for compromise, as upcoming talks between US and Chinese leaders promise to ease tensions.

The Australian Economy’s Dependency On China

The Australian economy gains from this situation due to its large commodity exports to China. However, China’s GDP growth has slowed to 4.8% year-over-year in the third quarter, which impacts Australia’s economic outlook. In the US, the Dollar faces pressure as a government shutdown delays the release of the September CPI report, increasing expectations for a Federal Reserve rate cut. Market predictions, based on the CME FedWatch tool, indicate a likely 25-basis-point cut in October and another by year-end, which benefits the Australian Dollar amid global trade improvements. The Australian Dollar is performing well against other major currencies, especially the British Pound. The currency heat map shows percentage changes, with the AUD making significant gains across various pairs. With the Australian Dollar around 0.6520, the current optimism about US-China negotiations could provide a short-term boost for the currency. This positive sentiment comes from recent diplomatic efforts, which are different from the direct presidential talks of the past. This development offers a fragile lift for commodity-linked currencies like the Aussie.

Changing Federal Reserve Expectations

However, the notion of a Federal Reserve rate cut happening soon seems misplaced in the current environment of October 2025. After aggressive rate hikes in 2023 to fight inflation, the Fed is now focused on data, with the CME FedWatch tool showing over an 80% chance that rates will remain unchanged this month. The government shutdown, which delays crucial inflation data, adds to this uncertainty, making an unexpected rate cut unlikely. Concerns about China’s economy are valid and have arguably worsened since the initial tariff conflicts. China’s latest GDP for the third quarter of 2025 is 4.5%, falling short of market expectations and highlighting ongoing challenges in its property sector. This limits the Australian Dollar’s potential strength, as Australian export volumes are directly affected. For derivative traders, this situation suggests that any gains for the AUD/USD may be capped in the upcoming weeks. We recommend considering November expiry call options with a strike price around 0.6600. This strategy allows us to manage risk by offsetting the premium paid while enabling profit if the pair rises. Alternatively, a conservative approach could involve a bull call spread, which reduces the entry cost. For example, buying the November 0.6550 call and simultaneously selling the 0.6650 call would benefit from a modest rise in the AUD/USD while recognizing that weak Chinese economic data may hinder a significant rally. Create your live VT Markets account and start trading now.

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