AUD/USD is currently trading around 0.6550, marking a 0.20% rise. This increase is attributed to a weaker US Dollar, as investors anticipate the Federal Reserve will ease monetary policy further. The Australian Dollar benefits from the cautious approach of the Reserve Bank of Australia (RBA), which is lowering expectations for policy adjustments. Meanwhile, the US Dollar is weak due to poor economic indicators in the US, particularly in manufacturing. This has led to speculation about a possible rate cut in December by the Fed.

Australian Economic Focus

In Australia, attention is now on the upcoming Services PMI and third-quarter GDP data. If the GDP results are better than expected, it could boost the AUD. However, disappointing economic data from China may limit gains since China is a significant trading partner of Australia. Market trends are influenced by changing risk sentiment and evolving expectations regarding Fed policies. If traders continue to predict a Fed rate cut, the USD may weaken further, potentially benefiting AUD/USD in the short term. The heat map displays percentage changes among major currencies. Today, the AUD is particularly strong against the Japanese Yen. A table presents these changes, highlighting percentage shifts for various currency pairs. The Australian Dollar shows a mixed performance against other major currencies, as reflected in the statistics. The US Dollar faces pressure, with the market assigning a high probability to a Fed rate cut this month. The CME FedWatch Tool currently indicates a 75% chance of a cut during the upcoming meeting on December 17th. This follows last week’s disappointing ISM Manufacturing PMI, which dropped to 48.5, indicating a contraction.

RBA’s Policy Impact

Conversely, the Reserve Bank of Australia is maintaining a steady course, holding its cash rate at 4.35% in November. With Australian inflation at 3.2%, the RBA is keeping the option for another rate hike open, showing a clear divergence from the Fed. This difference in monetary policy supports the strength of the Australian Dollar. We are closely watching the Australian Q3 GDP figures set for release tomorrow. The market is expecting a solid growth of 0.7% for the quarter. If the result exceeds this expectation, it could lead to a sharp rise in the AUD/USD. We recommend considering short-dated call options on AUD/USD as a strategy to capitalize on a potential positive surprise. However, caution is essential, as weakness from Australia’s largest trading partner could limit any gains. Last week’s Caixin Manufacturing PMI from China fell to 49.8, highlighting this risk. Continued signs of a slowdown in China may negatively impact the Australian Dollar, despite domestic strength. Given the RBA’s relatively high rates, the Australian Dollar is especially strong against low-yielding currencies, such as the Japanese Yen. Today’s data shows the AUD rising over 0.50% against the JPY. For traders seeking yield, a long AUD/JPY position could be an appealing carry trade. This growing divergence in monetary policy resembles the trends observed after 2008, when higher rates from the RBA drove significant capital into Australia. If this scenario repeats, we might see the start of a more sustained upward trend for AUD/USD. Create your live VT Markets account and start trading now.

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