The Australian Dollar (AUD) is weakening against the US Dollar (USD) as hopes for a US Federal Reserve interest rate cut in December fade. Strong job data in Australia has helped support the AUD, maintaining the Reserve Bank of Australia’s cautious approach. The ASX 30-Day Interbank Cash Rate Futures show a 6% chance of a rate cut to 3.35% from 3.60% at the upcoming RBA Board meeting. The US Dollar Index (DXY) has risen, now around 99.40, as the possibility of a Fed rate cut decreases. The CME FedWatch Tool reports a 46% chance of a 25 basis point cut in December, down from 67%. Recently, US President Donald Trump signed a bill to end the longest government shutdown in history. Mixed signals from the US economy and disappointing labor data have also emerged.

Key Factors Influencing The AUD

The AUD/USD pair is trading around 0.6520, moving within a rectangular range. It is stabilizing near the nine-day Exponential Moving Average. Key drivers for the AUD include interest rates, iron ore prices, and the health of the Chinese economy, its largest trading partner. Australia’s positive trade balance also supports the value of the Australian Dollar. The AUD is facing renewed pressure as the USD strengthens. The AUD/USD is trading near 0.6350, influenced by the recent US Non-Farm Payrolls that reported a strong addition of 210,000 jobs in October 2025. This robust labor data makes the Fed’s restrictive policy more appealing, boosting the USD. The current situation is a stark contrast to years past, such as after the 43-day US government shutdown in 2019. At that time, the market expected a 46% chance of a Fed rate cut. Now, the CME FedWatch Tool shows just a 15% chance of an easing in early 2026. This difference in central bank policies is a major factor affecting the Australian Dollar. In Australia, persistent inflation is a significant worry for the Reserve Bank of Australia (RBA), echoing past cautious statements from RBA officials. The latest CPI data for October 2025 showed an annual rate of 3.1%, just above the RBA’s target. This leaves little room for the bank to consider easing, even as economic challenges rise.

Factors Affecting The Australian Economy

Additionally, external factors are complicating matters for the AUD, especially the condition of China’s economy. Recent data showed that China’s official manufacturing PMI for October 2025 fell to 49.8, indicating a contraction and suggesting weaker demand for Australian commodities like iron ore. This is crucial, as China is Australia’s largest trading partner. In light of these conditions, traders should think about strategies to safeguard against further declines in AUD/USD. Buying put options with strike prices below the current level might help hedge against a drop towards the psychological support of 0.6300. The difference in central bank policies also points to a potential rise in implied volatility, which could make long volatility positions profitable in the coming weeks. Create your live VT Markets account and start trading now.

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