AUD/USD has slightly increased to around 0.6510, influenced by a weaker US Dollar due to concerns about a potential US government shutdown. During the European session on Thursday, the pair stayed close to 0.6505, as the USD corrected itself amid ongoing worries about the US economy. Currently, the US Dollar Index, which compares the dollar with six major currencies, is down 0.18% near 100.00 after reaching a five-month high of 100.35 the day before. The dollar has weakened against several currencies, particularly experiencing a 0.29% drop against the British Pound.

USD Outlook

Despite this, the outlook for the USD remains strong, with fewer expectations for future interest rate cuts from the Federal Reserve. According to the CME FedWatch tool, the chance of a rate cut in December has decreased to 62.5%, down from 68.6%. Recent US economic updates have also had an impact. The ADP Employment Change and ISM Services PMI both exceeded expectations. ADP reported a net gain of 42,000 jobs, compared to the estimated 25,000, while the Services PMI reached 52.4, its highest level in eight months. While the Australian Dollar has made slight gains against the USD, it continues to face pressure from other currencies. Australia’s monthly Trade Balance showed a surplus of 3,938 million, driven by a 7.9% rise in exports and a 1.1% increase in imports. With the current weakness of the US Dollar creating an opportunity for AUD/USD, trading near 0.6510, we see this as a temporary chance. The dollar’s softness, mostly due to the ongoing government shutdown, is creating short-term economic uncertainty. The Dollar Index (DXY) dropping near 100.00 reflects these immediate concerns in the market.

Market Volatility

The government shutdown, which started in late October 2025, is the primary source of market anxiety. Initial estimates suggest that each week of the shutdown could reduce Q4 GDP growth by 0.1%, which is understandably concerning. This uncertainty makes it challenging to confidently hold long positions on the US dollar in the near term. The current situation is leading to increased market volatility, with the VIX index rising from lows near 14 to over 18 recently. For derivatives traders, this indicates that strategies involving buying options could be wise to take advantage of potential price swings. The environment currently favors strategies that capitalize on volatility rather than predicting a specific price direction. However, it’s important to recognize the underlying strength in recent US economic data. The strong ADP employment figures and ISM Services PMI are noteworthy, indicating that the Federal Reserve may not have strong reasons to consider the dovish rate cuts previously anticipated by the market. Historically, the Fed has focused on stable, long-term economic data rather than reacting to short-term political events. On Australia’s front, conditions are also strengthening, making simple bets against the US dollar more complex. Although the strong trade surplus is a positive for the AUD, Australia’s latest quarterly CPI data showed a slight increase to 3.8%, keeping the Reserve Bank of Australia in a hawkish position. This means we aren’t seeing a clear divergence in central bank policies to justify a strong, sustained rally in the Aussie dollar. In the weeks ahead, the resolution of the US government shutdown will be crucial. A quick deal in Washington could lead to a sharp rebound in the US dollar, as the market refocuses on robust economic data and Fed policy. Thus, we should consider using short-dated put options on AUD/USD to hedge against this possibility, protecting our positions from a rapid shift. Create your live VT Markets account and start trading now.

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