The Australian Dollar (AUD) has weakened against the US Dollar (USD) as US-China tensions ease, leading to a more stable USD. China’s GDP showed a 4.8% annual growth and 1.1% quarterly growth in Q3, outperforming expectations. The AUD gained initially after the People’s Bank of China (PBOC) decided to keep interest rates unchanged, with Loan Prime Rates (LPRs) at 3.00% and 3.50%. Changes in the Chinese economy have a big effect on the AUD due to strong trade ties. In September, China’s retail sales rose by 3.0%, and industrial production grew by 6.5%, surpassing forecasts. The S&P/ASX 200 index increased by 0.41%, fueled by optimism surrounding US-Australia trade talks. Prime Minister Albanese aims to discuss critical mineral exports with President Trump, positioning Australia as a reliable alternative to China.

US Dollar Stability

The US Dollar Index is stable at around 98.50 due to easing tensions between the US and China. Many speculate that the Federal Reserve will cut interest rates, likely in October and December. However, the ongoing US government shutdown creates uncertainty for the economy. There is pressure on the AUD from an expected interest rate cut by the Reserve Bank of Australia (RBA), as unemployment rose to 4.5% in September. Currently, the AUD/USD pair is around 0.6510, with technical analysis suggesting a bearish trend in a descending channel. The pair is testing the nine-day Exponential Moving Average (EMA). The value of iron ore, China’s economic strength, and the RBA’s interest rate decisions are crucial for the AUD. Iron ore, Australia’s largest export, heavily influences the AUD’s value, with rising prices strengthening the currency. The Trade Balance also affects the AUD, as a surplus increases demand for foreign currency. As of today, October 20, 2025, the AUD struggles to maintain its value against the USD. The AUD/USD pair is influenced by two opposing factors: the RBA’s likely rate cut and similar signals from the US Federal Reserve, creating a challenging environment for both currencies.

Aussie Economic Challenges

The AUD faces considerable pressure due to a surprising increase in the unemployment rate, which hit 4.5% in September—its highest in four years. This rise from below 4% in much of 2024 gives the RBA a solid reason to cut rates next month. Additionally, iron ore prices have fallen to around $105 per tonne, down from over $130 last year, impacting export earnings. China’s economy, essential for supporting the AUD, is showing limited potential for significant growth. The recent 4.8% Q3 GDP growth continues a slowdown from the 5.2% rate in 2023. Although the PBOC is keeping rates steady, this slower growth is likely to reduce demand for Australian resources, capping the AUD’s potential for gains. On the flip side, the USD also faces challenges that limit its strength. The US government shutdown has reached 19 days, introducing uncertainty at home. The CME FedWatch Tool indicates that markets fully expect a Fed rate cut this month and another in December. This dovish stance from the Federal Reserve is curbing the USD’s strength. For traders, this situation suggests limited chances for major price moves either way in the near term. Competing pressures may keep the AUD/USD pair within a specific range, making strategies benefiting from low volatility, like selling straddles around the 0.6500 level, attractive. Essentially, traders might bet that the pair will remain volatile but directionless for the upcoming weeks. However, with the technical analysis indicating a descending channel and a likely RBA rate cut, a bearish outlook seems reasonable. Traders could consider buying AUD/USD put options with strike prices below 0.6450, preparing for a potential drop towards August lows. This strategy offers a defined-risk method to profit if domestic economic concerns outweigh the USD’s weaknesses. Keep an eye on key events, such as discussions between Prime Minister Albanese and President Trump, as well as meetings between US and Chinese officials. Unexpected outcomes from these talks could lead to sudden market volatility. Thus, traders should be ready for short-term price jumps and consider using weekly options for trading around these news events. Create your live VT Markets account and start trading now.

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