The AUD/USD has risen for four days, driven by a weaker US Dollar and growing expectations that the US Federal Reserve will cut rates in September. The market is predicting the Reserve Bank of Australia (RBA) will lower its cash rate by 25 basis points to 3.60% on August 12. Right now, the AUD/USD is around 0.6520, showing an estimated weekly gain of 0.80%. The US Dollar Index is close to a two-week low at about 98.00, impacting the dollar’s strength against other currencies.

RBA Rate Expectations

After its last meeting on July 8, the RBA surprisingly kept the cash rate at 3.85%. Economists think the rate could drop to 3.10% by 2026. Major Australian banks predict the rate will be 3.35% by the end of this year. The RBA may soon indicate that it is nearing the end of its rate cuts. The RBA Governor has highlighted external risks, such as the ongoing US-China tariff tensions. Negotiations between the two countries continue, with hopes for an extension of their tariff truce. Next week features important events for the AUD, including the RBA’s decision, labor market data, and the Q2 Wage Price Index. US data will play a role in potential Fed rate cuts, while US-China discussions may impact AUD/USD fluctuations.

Market Implications and Strategy

With the AUD/USD rising for four days, we are preparing for next week’s important events. The market has largely factored in a 25 basis point cut from the Reserve Bank of Australia on Tuesday, August 12. We should pay close attention to the RBA’s guidance, as any hint that the cutting cycle is ending could spark a significant rally. The case for a rate cut by the RBA was bolstered by recent inflation data showing Q2 2025 headline CPI easing to 3.4%, down from 3.6% the previous quarter. While this is progress, it is still above the RBA’s target, suggesting a cautious approach. Past policy shifts in late 2024 taught us that the central bank’s tone can weigh more than the rate cut itself. Meanwhile, the weakening US Dollar is benefiting the Australian Dollar (Aussie). The disappointing US jobs report for July, which showed non-farm payrolls at just 155,000 when 190,000 were expected, has strengthened expectations for a Federal Reserve rate cut in September. The decline of the US Dollar Index below 98.00 reflects this sentiment. Also, rising commodity prices are supporting the AUD. Iron ore prices have surprisingly climbed back to $118 per tonne, indicating stabilizing industrial demand from China. This offers a fundamental support level for the currency, cushioning any dovish moves by the RBA. Given this situation, we see a chance to buy near-term AUD/USD call options to benefit from possible volatility. These would be profitable if the RBA’s message is less dovish than anticipated or if US-China trade talks lead to positive news. An initial target could be breaking above the 0.6550 resistance level. To manage risk, watch the Australian labor market data and the Q2 Wage Price Index set to be released next week. Any unexpected weakness in these figures could erase gains from the RBA meeting. Therefore, holding some protective put options or setting tight stop-loss orders on long positions would be a smart move. Create your live VT Markets account and start trading now.

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