The Australian Dollar has stabilized as expectations for a rate cut by the Reserve Bank of Australia (RBA) have decreased. RBA Governor Michele Bullock mentioned that the labor market feels “a little tight,” which has influenced these changes. Currently, the market sees only a 15% chance of a rate cut, down from 60%. The AUD/USD exchange rate is steady at around 0.6560, having hit a three-week high of 0.6564 earlier. The upcoming Australian inflation data may give us more insight into future interest rates.

Mixed Economic Indicators

Australian economic indicators show a mixed picture. The Manufacturing Purchasing Managers Index (PMI) fell to 49.7, signaling contraction, while the Services PMI rose to 53.1, indicating growth. On the global stage, the Australian Dollar is benefiting from positive news regarding US-China trade talks, as leaders are expected to meet soon. In the US, the Dollar is under pressure as markets anticipate a 25-basis-point rate cut by the Federal Reserve. The CME FedWatch tool shows a 96% chance of another rate cut in December, driven by soft inflation and a cooling labor market. Hopes for a US-China trade deal and potential Fed easing are boosting risk sentiment, which helps the Australian Dollar despite ongoing uncertainties. Today’s currency changes reveal that the Australian Dollar is performing best against the British Pound. As of October 28, 2025, we see a clear difference in central bank policies, creating opportunities. The RBA is holding steady with only a slight chance of a rate cut after recent remarks. This differs sharply from the Federal Reserve, where another rate cut this Wednesday appears highly likely.

Central Bank Policy Divergence

The RBA’s position is supported by a labor market that is still tight, with the national unemployment rate around 4.1%. Governor Bullock’s comments keep the cash rate at 4.35%, near the levels we’ve seen for a while, reminding us of the aggressive fight against inflation in 2022 and 2023. All eyes are now on Wednesday’s Australian Consumer Price Index (CPI) data to confirm persistent inflation or persuade the RBA to rethink. Conversely, the US Dollar is weakening due to expectations of Fed easing. Recent data showed US core inflation dropping to 3.1%, and the latest Non-Farm Payrolls report came in below expectations with about 155,000 jobs, supporting the Fed’s cautious approach. Derivatives markets are not only factoring in this week’s 25-basis-point cut but also showing a 96% chance of another cut in December. The overall market sentiment is also favoring the Australian Dollar, which often acts as a barometer for risk appetite. Positive developments regarding US-China trade talks are crucial, especially since China is Australia’s largest trading partner, making up about 32% of our total exports. A potential deal would significantly benefit Australian commodity exporters. For derivative traders, this situation sets the stage for heightened activity ahead of Wednesday’s dual data releases from both countries. The importance of these events means that implied volatility on short-dated AUD/USD options has likely increased as traders prepare for possible market movement. Strategies that take advantage of volatility spikes, such as buying straddles or strangles, may be worth considering for potential price changes, no matter the direction. In summary, the upcoming weeks will depend on whether Australian inflation remains high enough to support the RBA’s strict stance. If CPI data is stronger than expected, it will highlight the policy divergence with the Fed and likely push AUD/USD higher. On the other hand, if inflation is soft, it could undermine the support for the Australian Dollar and lead to a sharp decline. Create your live VT Markets account and start trading now.

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