The Australian Dollar is struggling, trading at about 0.6490 against the US Dollar. This drop is linked to the growing chance of a rate cut by the Reserve Bank of Australia (RBA). Recent employment reports revealed that the jobless rate has risen to its highest in almost four years. The odds of a 25-basis-point cut have jumped to 70%, up from 40%, in just one week. Investors are eagerly watching economic indicators for hints about future monetary policy. On the other hand, the US Dollar is gaining strength, boosted by President Trump’s expectations for agreements with China’s Xi Jinping. The US Dollar Index is close to 99.00, benefiting from positive market feelings. However, the extended US government shutdown, now in its fourth week, creates uncertainty around upcoming economic data releases, including Nonfarm Payrolls. A Reuters poll shows a strong expectation for a 25-basis-point interest rate cut from the Federal Reserve this month, with nearly a 97% chance of this happening in October. Meanwhile, the People’s Bank of China has kept its Loan Prime Rates steady, and recent GDP growth figures slightly exceeded expectations, with Retail Sales and Industrial Production showing better-than-expected results.

Reserve Bank Of Australia Rate Cut Likelihood

With a high chance of a rate cut from the Reserve Bank of Australia, we can expect the Australian dollar to weaken further. Recent labor force data from the Australian Bureau of Statistics confirmed a jump in unemployment to a four-year high, increasing market expectations for a November RBA cut to over 70%, according to the ASX 30 Day Interbank Cash Rate Futures tracker. This pressure suggests that any strength in the AUD will be short-lived. Positive news, such as the critical minerals agreement between the US and Australia and stable data from China, is providing some support for the currency but is not enough to change the downward trend. China’s Q3 GDP growth of 4.8% shows a slowdown from the previous quarter, which dampens enthusiasm despite recent gains in industrial production. Right now, these factors seem to prevent a full collapse rather than indicate a recovery. The strength of the US Dollar is also complicated by the Federal Reserve’s cautious approach, with the CME FedWatch Tool showing a 97% chance of a rate cut on October 29. This is backed by recent data, like the ISM Manufacturing PMI for September, which further fell into contraction territory at 48.5. This makes the AUD/USD trade a story of relative weakness, where the RBA is seen as more likely to take decisive action than the Fed.

Options Trading Strategy

For traders using options, the heightened uncertainty ahead of next week’s Australian Q3 CPI and the Fed meeting suggests that buying AUD/USD put options is a wise choice. This strategy allows for profit if the price drops towards the 0.6400 level while limiting potential losses. If the CPI data is softer than expected, it could further deepen the decline of the Aussie. From a technical perspective, the pair remains in a clear downward trend. Any rise towards the 0.6500-0.6540 resistance zone could be a good opportunity to open short positions. There has been significant buying interest near the 0.6400 level in the past, making it a logical point for taking profits on bearish trades. If the price breaks decisively below this level, it could lead to fresh five-month lows. Create your live VT Markets account and start trading now.

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