Australia’s preliminary S&P Global Manufacturing PMI for October dropped to 49.7 from 51.4. In contrast, the S&P Global Services PMI increased to 53.1, up from 52.4, bringing the Composite PMI to 52.6, which is a slight rise from 52.4. At that time, the AUD/USD exchange rate was up 0.41%, trading at 0.6515. Several factors affect the Australian Dollar (AUD), including interest rates set by the Reserve Bank of Australia (RBA), iron ore prices, and the state of China’s economy.

The Impact of the RBA and China

The RBA’s interest rate decisions influence the AUD by impacting lending rates and inflation. Since China is Australia’s largest trading partner, its economy also plays a crucial role. A strong economy in China means more demand for Australian exports, which boosts the AUD’s value. Iron ore prices have a significant impact on the AUD as they represent Australia’s biggest export. When iron ore prices rise, demand for the AUD increases, and when they fall, the opposite occurs. Australia’s Trade Balance also affects the AUD; a positive balance strengthens it, while a negative balance weakens it. Recent data shows mixed signals for Australia’s economy. The manufacturing sector is in contraction at 49.7, indicating weakness. However, the services sector remains strong, pushing the overall composite score to 52.6 and suggesting that the broader economy is still growing. This division in the economy presents a challenge for the Reserve Bank of Australia (RBA). With inflation figures from Q3 2025 still above the RBA’s target, this report is unlikely to lead to policy changes. Thus, derivative markets are expected to reflect a hawkish stance from the RBA for the rest of the year.

External Economic Influences

External factors, especially China’s economic performance, remain a source of uncertainty, a trend we have observed since the uneven recovery began in 2023. Still, demand for Australian exports has helped keep iron ore prices steady, trading around $115 per tonne. This supports Australia’s trade balance and provides a solid foundation for the Australian dollar against other currencies. The strength of AUD/USD at around 0.6515 results more from US dollar weakness than Australian dollar strength. The market anticipates that the US Federal Reserve may cut interest rates sooner than the RBA, creating a divergence in policy that has been developing over the past year. This interest rate gap makes holding the Australian dollar more appealing for the time being. Given these conflicting signals—from weak manufacturing data to strong services and international support—we expect the AUD to remain in a stable range. Traders might consider strategies that can profit from this stability and reduced risk, such as selling options that are far from the current price. This tactic takes advantage of the market’s current uncertainty. Create your live VT Markets account and start trading now.

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