The AUD/USD pair climbed to around 0.6620, even though Australia’s Trade Balance data for August didn’t meet expectations. During the European session, the pair traded up by 0.15% at 0.6625. The trade surplus was reported at 1,825 million, significantly lower than the estimated 6,500 million and the previous figure of 7,310 million. Weak Trade Balance data generally puts pressure on the Australian Dollar since the economy relies heavily on exports. Future movements in the Australian Dollar will depend on the Reserve Bank of Australia’s (RBA) monetary policy. The RBA recently kept its Official Cash Rate steady at 3.6%, noting that inflation remains higher than expected.

Impact on the US Dollar

In the US, the Dollar is struggling as job growth slows down, raising expectations for interest rate cuts by the Federal Reserve this year. The ADP Employment report showed a drop of 32,000 jobs in September, opposite the expected gain of 50,000. Additional pressure on the US Dollar comes from a government shutdown after a temporary funding bill failed in the Senate. The trade balance, which measures the difference between imports and exports, reflects strong demand for exports. Despite the poor trade data for August, the Australian dollar shows surprising strength, trading close to 0.6625. The trade surplus was only 1,825 million, far lower than the expected 6,500 million, indicating issues in our key export market. Typically, such weak data would lead to a decline in the Aussie dollar, but that hasn’t happened. The RBA has maintained its interest rates at 4.35%, citing persistent inflation. This cautious stance from the RBA supports the currency but doesn’t fully explain the current price movements.

Strategies for Traders

The bigger picture is the weakness of the US dollar, which is driving the AUD/USD pair higher. The latest Non-Farm Payroll report showed the US added only 85,000 jobs in September, falling short of the forecast of 150,000. This disappointing labor data strengthens the belief that the Federal Reserve may need to cut interest rates soon. According to market indicators, the CME FedWatch Tool now suggests a nearly 70% chance of a rate cut by the Federal Reserve before the year ends. This expectation of looser monetary policy in the US is making the dollar less appealing. The ongoing US government shutdown, currently in its third day, is also creating political uncertainty and adding stress to the greenback. This situation presents a challenge for traders, similar to what we experienced in late 2023 and early 2024, which resulted in significant price volatility. With conflicting signals—a weak Australian economy paired with an even weaker US outlook—we expect to see more price fluctuations in the coming weeks. Derivative traders might find it wise to invest in strategies like straddles or strangles on the AUD/USD pair to capitalize on this volatility. Specifically, traders could consider buying near-the-money call options to benefit from the current upward momentum driven by US dollar weakness. However, put options could serve as a hedge or a speculative play, since any unexpectedly strong US data or a resolution to the shutdown could quickly change the trend. Using options allows for defined risk in what is becoming a very uncertain environment. Create your live VT Markets account and start trading now.

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