The AUD/USD pair has climbed to a near two-month high of 0.6620. The Australian Dollar (AUD) is performing well, indicating that the Reserve Bank of Australia (RBA) may tighten its monetary policy to combat rising inflation expectations. This week, the AUD increased by 1.15% against the US Dollar (USD). Meanwhile, the Canadian Dollar fell by 1.15% against the AUD, and the Euro (EUR) dropped by 0.80%.

Australian Household Spending Growth

In October, Australian household spending grew by 1.3%, an increase from just 0.3% in September. This boost supports a hawkish stance from the RBA. Conversely, the USD is weaker, as the market anticipates that the Federal Reserve could cut interest rates soon. On Friday, the AUD/USD was trading at 0.6622, with technical indicators pointing toward ongoing bullish momentum. A rising 20-day Exponential Moving Average and a strong 14-day Relative Strength Index indicate that more gains could be ahead. The Federal Reserve’s interest rate decisions are closely watched. Current odds suggest an 87% chance of a 25 basis point cut in December, which could impact the USD. The Federal Reserve aims to keep inflation around 2% while ensuring full employment through its monetary policies. The AUD/USD shows notable strength, approaching 0.6620 after an eleven-day upswing. This occurs due to the differing monetary policies between Australia and the United States, presenting a clear opportunity in the upcoming weeks.

Outlook and Strategy

We believe the RBA will maintain a hawkish approach, especially given recent data that supports this view. For instance, Australia’s Q3 2025 inflation report indicated core inflation at 3.1%, still above the RBA’s target. Governor Bullock’s comments on controlling inflation further reinforce the possibility of another rate hike. Meanwhile, we expect the USD to weaken as the Federal Reserve gets ready to cut rates next week. The November jobs report showed unemployment rising to 4.2%, and recent CPI data indicated that inflation is cooling to about 2.5%. This gives the Fed plenty of reasons to ease its policy. Markets are pricing in an 87% chance of a rate cut, which poses a significant challenge for the dollar. Given this outlook, we are thinking about buying AUD/USD call options to take advantage of the anticipated rise. A January 2026 call option with a strike price near 0.6700 could provide good leverage if the pair surpasses its recent highs. This strategy limits our downside risk to just the option’s premium, which is cautious ahead of a major central bank decision. However, we should remember the lessons from late 2023 and early 2024. During that time, the market also expected Fed rate cuts, but a strong US economy caused delays, leading to a sharp rebound in the dollar. A similar surprise from the Fed next week could quickly reverse the current AUD/USD rally. On a technical level, the pair is in a clear uptrend, holding well above the 20-day moving average of 0.6542. This level serves as our reference point; if it closes below this, it would indicate a potential reversal, prompting us to exit long positions. Our main target is the September high of 0.6660, which we will monitor as a critical resistance level. Create your live VT Markets account and start trading now.

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