The Australian Dollar (AUD) has stabilized against the US Dollar (USD), with the AUD/USD pair rising back above 0.6500 after dropping to its lowest point since August 27. This rebound comes from improved risk sentiment due to a change in US rhetoric, which has eased fears of escalating US-China trade tensions. Currently, the AUD/USD is trading at about 0.6516, up by 0.65%. Australia’s strong ties with China make it sensitive to news about US-China relations. Over the weekend, US President Trump eased his tough trade stance after previously threatening 100% tariffs on Chinese imports.

Proposed Tariffs And Market Sentiment

US Treasury Secretary Scott Bessent noted that proposed tariffs might be shelved if China takes steps to reduce tensions, providing a temporary boost to market sentiment. However, Trump’s unpredictable trade policies still create uncertainty. Traders are now looking forward to the Reserve Bank of Australia’s meeting minutes for clues about future monetary policy. The ongoing US government shutdown is affecting economic updates, including the delay of the CPI report until October 24. Everyone is also keenly awaiting comments from Federal Reserve Chair Jerome Powell. The Reserve Bank of Australia’s minutes describe discussions and votes among members, along with their views on economic conditions affecting interest rates, which significantly influence the AUD. As of October 14, 2025, the Australian Dollar is trading around 0.6650 against the US Dollar. This level reminds us of the volatility seen in the early 2020s, where the AUD responded dramatically to US-China trade news, often triggered by a single social media post. This sensitivity remains crucial in our market analysis.

RBA Policy And Economic Influences

The main challenge for the Australian Dollar is the hawkish Reserve Bank of Australia (RBA) contrasted with slowing growth in China. Australia’s recent inflation data showed a stubborn 4.5%, well above the RBA’s target range, leading us to believe the central bank will keep its cash rate at 4.10%. Meanwhile, China’s Caixin Manufacturing PMI recently dropped to 49.8, indicating a contraction that could threaten Australian exports. On the US side, the Federal Reserve is still pursuing its “higher for longer” policy, maintaining the Fed Funds Rate at 5.50%. This creates a notable interest rate advantage for the US Dollar, potentially capping any increases in the AUD/USD exchange rate. The significant rate gap between the two central banks is likely to limit substantial upward movements for the pair in the near future. For those trading derivatives, this conflicting environment is increasing expected price fluctuations. One-month implied volatility for AUD/USD has risen to 9.5%, close to a three-month high, making options strategies like straddles attractive for a possible breakout after the RBA minutes are released. Traders who are bearish on the Chinese economy might consider buying AUD/USD put options to prepare for a drop below the 0.6600 support level. With important economic data on the horizon, it’s crucial to manage risk for any current currency exposure. Traders holding long positions in AUD should think about buying puts as a hedge against potential downturns stemming from negative news from China. This strategy offers protection while still allowing for participation in any upside surprise from a more assertive RBA stance. Create your live VT Markets account and start trading now.

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