The AUD/USD pair is steady at around 0.6640 after a four-day climb to two-month highs. This pause comes as markets tread carefully ahead of the Reserve Bank of Australia’s (RBA) decision on Tuesday and the Federal Reserve’s announcement on Wednesday. The Australian Dollar is holding up well, as traders adjust their expectations and do not foresee further rate cuts from the RBA. The Consumer Price Index (CPI) rose by 3.2% year-on-year in the third quarter, up from 2.1% in the second quarter, indicating ongoing inflation.

RBA Policy Expectations

The RBA is likely to keep its policy rate at 3.6%. Market participants are keen to hear guidance on future monetary policies, with some even predicting a rate hike as early as 2026, fueled by strong household spending that increased by 1.3% in October, compared to 0.3% in September. China’s unexpectedly large trade surplus further supports the AUD, increasing demand as Australia relies heavily on Chinese exports. On the other hand, the US Dollar faces pressure, with an 87% chance of a 25-basis-point rate cut by the Fed. The US Dollar Index is near a five-week low, as Fed officials point to a weakening labor market and slower economic growth. As of December 8, 2025, a clear divide is forming between Australian and US monetary policy, presenting a great opportunity for currency traders. The Aussie dollar is strong, close to two-month highs against the US dollar before central bank meetings this week. This suggests positioning for potential AUD strength against a weakening USD. Market sentiment towards the RBA has shifted significantly, with traders now believing that rate cuts are unlikely for the foreseeable future. Recent data from the Australian Bureau of Statistics shows that the monthly inflation indicator rose to 3.4% in November, increasing pressure on the RBA to take action. Thus, strategies that could benefit from a hawkish RBA, such as buying AUD call options, should be considered.

Fed Expectations and Strategy

Historically, the RBA has acted independently of other central banks. For example, it was among the first to raise rates post-2008 financial crisis, indicating it could pursue its own agenda if domestic inflation stays high. This trend supports a stable or stronger Aussie dollar, even amidst uncertain global growth. Conversely, the US dollar is under pressure as the Federal Reserve is expected to announce rate cuts on Wednesday. The November jobs report revealed that the US economy added only 145,000 jobs, falling short of predictions and confirming a cooling labor market. The market is factoring in an 87% chance of a rate cut, further weighing on the dollar. Given this situation, buying AUD/USD call options set to expire in the coming weeks seems wise. This strategy allows for profit from a potential rise in the currency pair due to policy differences, while limiting potential losses to the premium paid. Risks include unexpected caution from the RBA or signals from the Fed indicating fewer rate cuts for 2026 than anticipated. Support for the Aussie remains strong, driven by its largest trading partner, China. The recently reported trade surplus for China in November was significantly larger than expected, aided by a rebound in exports. This positive news bolsters Australian exports and, in turn, the Australian dollar. Create your live VT Markets account and start trading now.

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