The Australian Dollar (AUD) found support as traders cautiously considered the Reserve Bank of Australia’s (RBA) policy. The AUD rose against the US Dollar (USD), ending a three-day decline. This happened even as expectations for no interest rate cuts from the US Federal Reserve (Fed) in December grew. In September, Australia’s Building Permits jumped 12% month-on-month, well above the expected 5.5%. Meanwhile, China’s Manufacturing Purchasing Managers’ Index (PMI) dropped to 50.6 from 51.2, impacting economic sentiment because of the close trade relationship between Australia and China. The USD gained strength as traders reduced the chances of Fed rate cuts, now predicting only a 69% likelihood of a cut in December, down from 93% the previous week. The Federal Reserve recently cut interest rates by 25 basis points, though opinions among Fed members on this decision were mixed. Currently, the AUD/USD pair is trading around 0.6550, suggesting a period of consolidation. The resistance level is at 0.6600, while support is at 0.6544. If this support level breaks, it could lead to further declines. The Australian Dollar has shown strength against several major currencies, particularly the Japanese Yen. Looking back, market sentiment was anxious about the RBA’s policies ahead of its decision in late 2023. Now, in November 2025, the situation has shifted. The RBA has implemented several rate cuts to help a slowing economy. Recent inflation data for Q3 2025 showed an annual rate of 2.9%, well within the RBA’s target, supporting its more cautious approach. During this time, the strength of the US Dollar stemmed from fading hope for a Fed rate cut, though this proved to be a short-lived situation. The Fed has since lowered its benchmark rate to a range of 3.75%–4.0%, responding to weakening economic data throughout 2024 and 2025. October 2025 saw US unemployment rise to 4.1%, encouraging the Fed to maintain a supportive stance. China continues to be a challenge for the Australian Dollar, a trend we’ve observed for years. The latest Caixin Manufacturing PMI for October 2025 was 50.2, indicating only slight growth and showing ongoing weakness in Australia’s biggest trading partner. This instability in China limits the AUD’s potential rise, even against a weaker US Dollar. For traders dealing in derivatives, the current situation — with central banks pursuing reserved policies amid slow growth in China — might lead to increased volatility in AUD/USD. The pair is currently trading around 0.6850 and faces pressure from combined interest rate differentials and weak external demand for Australian commodities. This environment is suitable for strategies like straddles or strangles, which could take advantage of a potential breakout. In light of these factors, selling out-of-the-money puts on AUD/USD could be a good way to earn premium, betting on the support level around 0.6700 remaining intact due to the Fed’s policy. Alternatively, traders looking to capitalize on a gradual increase might consider buying call spreads, which would lower the cost of a bullish position while managing risk. Keeping an eye on incoming data from the US and China will be key to identifying the next market mover.

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