AUD/USD is holding strong around 0.6650 following good trade balance news from China. In November, China’s trade surplus grew to $111.68 billion, exceeding the expected $100.2 billion, thanks to robust exports. The AUD/USD pair has increased for 12 days, nearing its highest point in two months during late Asian trading. The Australian Dollar continues to strengthen as investors anticipate the Reserve Bank of Australia (RBA) will stop cutting interest rates. The Australian Dollar is particularly strong against the US Dollar, with many expecting the RBA to shift to tighter monetary policies. This comes after Australia’s inflation rose to 3.2% annually in Q3, up from 2.1% in the previous quarter. In contrast, the US expects the Federal Reserve to lower interest rates by 25 basis points due to challenges in the job market. The US Dollar Index is close to its five-week low at 98.75. The RBA’s interest rate decisions are crucial for the AUD. A tough stance from the RBA can strengthen the Australian Dollar, while a softer outlook could weaken it. Right now, the AUD/USD pair is notably strong, trading close to 0.6800 and reaching multi-month highs. This upward trend stems from differing policies between the RBA and the US Federal Reserve, similar to a few years ago when this scenario led to a strong rally for the Aussie. The RBA is keeping its cash rate steady at 4.35% to tackle rising prices. Recent data indicates that Australia’s annual inflation rate hit 5.4% in Q3, well above the central bank’s target, which makes it unlikely for the RBA to cut rates soon. This situation supports the Aussie dollar. Good economic data from China boosts the Australian currency, given Australia’s reliance on commodity exports. In November, China reported a trade surplus of $75.4 billion, exceeding expectations and easing fears of an economic slowdown. This suggests strong demand for Australian resources as we head into the new year. On the other hand, the US Dollar is weakening as signs indicate the Federal Reserve’s tightening cycle may be finished. The latest US Consumer Price Index (CPI) showed inflation has dropped to 3.1%, and recent job reports reflect a gradual softening in the labor market. Markets now see a greater than 60% chance of a Fed rate cut in early 2026. For traders in derivatives, this market environment hints at potential continued strength for AUD/USD in the upcoming weeks. Buying call options on the AUD/USD could be a simple way to profit from expected increases while limiting downside risk. Given the clear economic signals, implied volatility may rise, increasing the value of these options. Alternatively, traders can consider creating bull call spreads, which involve buying one call option and selling another at a higher strike price. This method reduces the initial premium cost, allowing for profit from a moderate rise in the AUD/USD. Traders should stay alert for the upcoming RBA meeting minutes and US employment data, as unexpected developments could change the current trend.

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