Australia’s Economic Struggle with Inflation

The Australian Dollar (AUD) has fallen against the US Dollar (USD) as the 10-year bond yield in Australia rose to about 4.35% due to inflation worries. The Reserve Bank of Australia (RBA) decided to maintain the Official Cash Rate at 3.6%. Governor Michele Bullock mentioned that there were no talks of rate cuts, and the insistence is to keep core inflation below 3%. In October, the TD-MI Inflation Gauge increased by 0.3% compared to the previous month, indicating ongoing inflation. Building Permits also rose by 12.0% in October, exceeding the expected 5.5% growth. The US Dollar Index continued its climb, supported by cautious sentiments regarding the Federal Reserve’s upcoming policy decisions in December. Although the US Fed lowered its benchmark rate by 25 basis points to a range of 3.75%–4.0%, there were differing opinions within the committee. Additionally, the ongoing US government shutdown has created a cautious market atmosphere. On trade issues, the White House announced changes in export controls and tariffs between the US and China. Australia’s Quarterly Trimmed Mean CPI increased by 1.0%, surpassing expectations, while the AUD/USD pair trades around 0.6530. The price indicates weakening momentum, with important support at 0.6500 and resistance at about 0.6600. Changes in China’s economy could significantly affect the AUD due to strong trade ties. As of November 4, 2025, the Australian Dollar continues to weaken against the US Dollar amid persistent inflation fears in Australia. The increase in the 10-year bond yield to 4.35% suggests that investors seek higher returns due to this risk. The RBA’s recent decision to maintain rates at 3.6% without signaling immediate cuts adds to this pressure. The outlook for the Australian economy appears mixed, creating uncertainty that impacts the currency. While building permits have shown surprising strength, the fourth consecutive monthly drop in ANZ Job Advertisements suggests a slowing job market. Recent data from October confirmed that the TD-MI Inflation Gauge is still increasing annually at 3.1%, putting the RBA in a tough situation.

Impact of US Economic Conditions

In the US, the Dollar is strengthening due to cautious signals from the Federal Reserve. Though the Fed recently cut rates, the market now sees only a 65% chance of another cut in December, down from 94% a week earlier, according to the CME FedWatch tool. This uncertainty, along with a six-week US government shutdown, is driving traders towards the safety of the US Dollar. We see signs of a slowing US economy, with the ISM Manufacturing PMI for October dropping to 48.7, indicating a contraction. Recent Non-Farm Payroll data for October 2025 also fell short of expectations, showing an increase of only 150,000 jobs. This reinforces the Fed’s cautious “wait-and-see” strategy and adds to market uncertainty favoring the US Dollar. The economic outlook for China, Australia’s largest trading partner, is also a major concern that impacts the AUD directly. China’s official Manufacturing PMI fell to 50.6 in October, and recent drops in iron ore prices to below $120 per tonne due to demand fears signal decreasing industrial activity. This external pressure puts further strain on the resource-sensitive Australian Dollar. From a technical perspective, the AUD/USD pair is trading around 0.6530, which is below its nine-day moving average, indicating weakening momentum. The currency is stuck in a consolidation phase, making a fall below the psychological support at 0.6500 increasingly likely. We saw a similar trend back in the spring of 2024 before a sharp decline. For derivative traders, this situation suggests buying AUD/USD put options could be a wise choice in the coming weeks. This strategy allows taking advantage of any potential drop toward the 0.6460 support level while limiting risk to the premium paid. Volatility may rise, especially with ongoing US government shutdown news and upcoming inflation reports. Alternatively, traders who are willing to take on more risk might look into shorting AUD/USD futures contracts. A stop-loss order set just above the nine-day EMA at 0.6540 can effectively manage risk. It’s crucial to watch for a significant break below the 0.6500 level, which could lead to increased selling pressure. Create your live VT Markets account and start trading now.

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