The Australian Dollar has hit a nearly two-month high against the US Dollar as speculation grows that the Reserve Bank of Australia (RBA) may keep its policies tight. This outlook is supported by stronger household spending and better trade data, indicating that the RBA might hold current rates steady next week. As of now, the AUD/USD is trading at about 0.6622, the highest level since October 7. The market expects the RBA to adopt a cautious approach in their December meeting. Recent domestic indicators suggest that further rate cuts are not warranted, with persistent inflation and steady domestic demand.

Household Spending and Trade Data

In October, household spending rose by 1.3%, a significant increase from September’s 0.3%. This brings the total spending up by 5.6% compared to last year. Additionally, exports grew by 3.4% month-over-month in October, and the trade surplus expanded from AUD 3,707 million to AUD 4,385 million. China’s recent adjustment of the yuan midpoint has also supported the Australian Dollar, given its role as a reflection of China’s economic health. Meanwhile, the US Dollar is under pressure with expectations of a more lenient Federal Reserve, which further boosts the AUD/USD. Currently, the US Dollar Index stands at around 98.83, close to a one-month low. The Australian Dollar is gaining strength against the US Dollar, reaching its peak since October 2025 as our expectations shift. We are observing a clear difference in monetary policy between a potentially more assertive RBA and a softer US Federal Reserve. This situation suggests that the Aussie could continue to rise in the upcoming weeks. This positive outlook is supported by persistent inflation in Australia, with the latest quarterly Consumer Price Index (CPI) report for Q3 2025 showing inflation at 3.9%, above the RBA’s target range. With strong data like this, money markets now see less than a 10% chance of an RBA rate cut in the first half of 2026. This hawkish stance is a strong supporter of the currency.

Impact on the US Economy

Conversely, the US economy shows signs of cooling, reinforcing the argument for a more dovish Federal Reserve. The November 2025 Non-Farm Payrolls report revealed that job growth has slowed to a modest 155,000. Additionally, the Fed’s preferred inflation measure, the core PCE index, decreased to 2.8% year-over-year. These figures support the idea of potential US rate cuts in mid-2026, which weighs on the US dollar. For derivative traders, this environment is favorable for strategies that benefit from a rising AUD/USD. Interest is increasing in buying call options with strike prices at 0.6700 and 0.6750, especially with expirations set for late January or February 2026. This allows traders to take advantage of potential gains following the RBA’s meeting on December 9, while minimizing downside risk. Reflecting on the past, we recall the sharp sell-off of the AUD in mid-2024 when fears of a global slowdown pushed the pair under 0.6400. The current scenario feels different due to stronger domestic demand in Australia, which offers more support for the currency. However, a surprise negative shock from China’s economy would pose a significant risk. The increasing interest rate gap between Australia and the US is reviving the attractiveness of the carry trade. With the RBA likely to maintain rates and the Fed expected to ease up, holding the higher-yielding Australian Dollar against the US Dollar can be profitable. This fundamental support should help mitigate any short-term dips in the AUD/USD exchange rate. Create your live VT Markets account and start trading now.

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