The Australian Dollar (AUD) gained strength after Reserve Bank of Australia (RBA) Governor Michele Bullock stated there is no immediate need for rate cuts. A slight decline in the US Dollar (USD) also pushed the AUD/USD pair to its highest level since mid-September, creating a positive market outlook. The RBA decided to keep the Official Cash Rate at 3.6% while stressing the importance of monitoring future data and risks. Governor Bullock highlighted that inflation and employment data will be crucial for upcoming meetings, indicating possible future rate increases if needed. Market trends suggest a pause in rate cuts due to ongoing inflation above the RBA’s target.

Contrasting Monetary Policies

The market expects a dovish approach from the Federal Reserve, contrasting with the RBA’s firm stance, which is influencing AUD/USD movements. The US PCE Index rose by 2.8% in September, matching forecasts, and reinforcing expectations that the Fed may cut rates. Traders see a 90% chance of a rate cut by the Fed, which limits the USD’s recovery. Currently, the AUD/USD remains above a key support level near 0.6615, with room for further growth. If this level is not maintained, market sentiment may turn bearish, with the next important support at 0.6500. The pair’s movement is also affected by Australia’s trade relationships, especially with China and important exports like iron ore. The economic health of China drives demand for Australian exports, which impacts the value of the AUD. A positive trade balance boosts the AUD due to increased foreign interest in Australian goods. A clear contrast exists between the RBA and the US Federal Reserve’s policies, creating a significant opportunity. The RBA seems unexpectedly strong, even hinting at possible rate hikes, while the Fed is expected to cut rates soon. This difference supports our positive outlook on the Australian dollar against the US dollar. To strengthen this view, consider the latest inflation data. Australia’s recent monthly CPI for October 2025 was a stubborn 5.1%, staying above the RBA’s target of 2-3%. In contrast, the US Core PCE Price Index for October 2025 dropped to 2.7%, reinforcing expectations of a Fed rate cut.

Trading Strategies for AUD/USD

This policy divergence is pushing the AUD/USD pair towards recent highs, and we expect this trend to continue. The Fed’s anticipated 25 basis point rate cut should further weaken the US Dollar. Therefore, we recommend positioning for further strength in the Aussie in the upcoming weeks. For options traders, buying AUD/USD call options with a strike price around 0.6700 could be a good strategy to profit from the expected rise. A more conservative approach would be to use a bull call spread to limit costs while still benefiting from potential gains. These strategies align with the technical outlook that suggests a test of this year’s peak is feasible. With significant economic events happening this week, including the Fed meeting and Australian jobs data on Thursday, we expect short-term implied volatility to increase. This could make selling options appealing, so we might consider selling cash-secured puts or bull put spreads with a strike near the 0.6600 support level. This approach allows us to earn premium while positioning for an expected upward movement. Additionally, outside of central bank policies, other fundamental factors are also supporting a stronger Aussie dollar. Iron ore futures remain robust, trading at around $138 a tonne on the Singapore Exchange, supported by steady demand. Moreover, China’s latest Caixin Manufacturing PMI for November 2025 increased to 50.7, indicating resilience in Australia’s biggest trading partner. With the RBA likely done cutting rates and commodity prices staying stable, the outlook for the AUD/USD appears to be upward. We will monitor the support level around 0.6600 as a possible area to enhance bullish positions. The upcoming Australian employment report on Thursday will be another key domestic data point to watch. Create your live VT Markets account and start trading now.

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