The Australian Dollar is stabilizing after hitting its lowest level since late September. The ongoing US government shutdown, now in its second week, is shaking market confidence since it has halted key economic data releases. AUD/USD is currently around 0.6580, following a recent dip to 0.6556. Caution remains as traders await the Federal Open Market Committee Minutes. Meanwhile, the US Dollar Index has slightly decreased from its two-month high of 99.05.

Fed Reductions and Rate Cuts

The Federal Reserve has cut its rate by 25 basis points, bringing it to a range of 4.00%-4.25%. There are hints of more cuts ahead. The CME FedWatch tool shows an over 80% chance for 25-basis-point cuts in upcoming meetings. The US budget deadlock, now two weeks long, is impacting sentiment, especially with important data releases like Nonfarm Payrolls on hold. This uncertainty clouds the US growth outlook amid the ongoing shutdown. In Australia, there’s anticipation for Thursday’s release of one-year forward Consumer Inflation Expectations. The Reserve Bank of Australia previously reported a rise to 4.7% in September, indicating a cautious stance due to ongoing inflation pressures. Today, the Australian Dollar has performed best against the Swiss Franc. A heat map shows percentage changes across major currencies. Looking back at past market stress, particularly the US government shutdown in late 2023, we see a similar pattern. Back then, AUD/USD was struggling around 0.6580, while now it is trading more confidently near 0.6750. This historical context shows stronger support for the Aussie.

Interest Rate Environment and Strategy

The interest rate environment has changed significantly, impacting our strategy. Previously, markets were anticipating aggressive Fed rate cuts from a peak over 4.00%; now, as of October 9, 2025, the official cash rate is lower at 3.50%-3.75%. Attention is now focused on the upcoming US Consumer Price Index (CPI) data. The forecasts for September 2025 CPI, due next week, suggest a year-over-year figure of 3.6%, a slight decrease that could weaken the US dollar if actual results are lower. In Australia, conditions have also improved from the high-anxiety period of late 2023 when one-year inflation expectations were concerning at 4.7%. The latest figures from September 2025 show consumer inflation expectations have decreased to 3.1%. This has allowed the Reserve Bank of Australia to maintain its cash rate in its last meeting, creating a stable environment for the currency. With the US CPI release approaching, traders should explore strategies to manage potential volatility in AUD/USD over the next two weeks. Buying AUD call options may be a smart way to take advantage of a potential rally if US inflation falls short of expectations, which would weaken the greenback. If there’s concern about unexpectedly high inflation, purchasing AUD put options could protect against a sharp drop. Also, keep an eye on the US Dollar Index (DXY), which offers a broader view of the dollar’s strength. While it retreated from a high around 99 in late 2023, it has since strengthened and is currently around 104, reflecting ongoing global economic uncertainties. This strength in the dollar suggests that any AUD rally could face resistance, making range-trading strategies using futures or options worthwhile until a clear trend forms after the CPI data. Create your live VT Markets account and start trading now.

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