AUD/USD rose by 0.40% on Thursday, trading around 0.6510. This increase is driven by interest in commodities. Markets are eagerly waiting for the US inflation report, which will be released on Friday. The Australian dollar is benefiting from rising commodity prices, especially Oil and Gold. This comes amid growing geopolitical tensions, as the US considers new software export restrictions to China, starting November 1.

Impact On The Australian Economy

These potential restrictions are a response to China’s limits on rare earth exports to the US. This situation challenges Australia’s economy, which heavily relies on exports to China. However, there is optimism for a diplomatic solution following an upcoming meeting in Malaysia. The spotlight is on the US Consumer Price Index (CPI) for September, which was delayed due to a government shutdown. Predictions suggest a rise to 3.1% year-on-year, up from 2.9% in August. These figures are crucial for US monetary policy, as the Federal Reserve is expected to cut interest rates next week. In Australia, attention is turning to the preliminary Purchasing Managers Index (PMI) data being released later today. Additionally, a speech by RBA Governor Michele Bullock is expected early on Friday. The Australian Dollar is notably strong against the Japanese Yen, according to the currency exchange heat map.

Market Volatility Ahead

Tomorrow’s US inflation report is critical for the upcoming weeks. Economists expect a rise to 3.1%, which will likely impact the Federal Reserve’s decision on interest rates next week. This makes the AUD/USD strength above 0.6500 feel somewhat shaky. Despite the expected inflation increase, market conditions suggest almost certain Fed rate cuts. The CME FedWatch Tool indicates an 88% chance of a 25-basis-point cut, marking the first rate drop after holding steady for most of 2025. This expectation adds pressure on the US dollar, while supporting the Australian dollar. On the Australian front, rising commodity prices are giving the currency a significant boost. Iron ore prices have risen above $130 per tonne, a level we haven’t seen since early 2024. However, we must remain cautious about the risks from US-China trade talks this weekend, as Australia’s economy is very sensitive to Chinese demand. The combination of a crucial inflation report and a vital diplomatic meeting could lead to increased market volatility. Establishing trades to profit from significant price swings, no matter the direction, could be a wise strategy. An unexpected inflation figure or a breakdown in trade talks could easily shift the market by over 1% in just one session. For those with a market direction in mind, buying call options on AUD/USD allows you to bet on a dovish Fed and successful US-China negotiations. Conversely, purchasing put options can protect against a hawkish surprise from the inflation report or renewed trade-war rhetoric. Looking back at the market changes during the 2018-2020 trade disputes, we know how quickly sentiment can turn negative. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now