The AUD/USD pair increased by 0.65%, reaching around 0.6560 in the late European session on Monday. This rise follows positive news regarding a potential US-China trade deal. US Treasury Secretary Scott Bessent hinted that the U.S. may pause new tariffs, while China has delayed its export controls on rare earth materials. Bessent’s comments came after he met with Chinese Premier He Lifeng during the ASEAN summit in Malaysia. This has raised hopes for reduced trade tensions. The Australian Dollar often gains from such news since Australia heavily depends on exports to China.

Domestic Market Outlook

In Australia, the market is looking forward to the Q3 Consumer Price Index (CPI) data being released on Wednesday. This information will influence expectations for the Reserve Bank of Australia’s (RBA) monetary policy. RBA Governor Michelle Bullock highlighted the bank’s goal to lower inflation while keeping job satisfaction high. Although the unemployment rate rose to 4.5% in September, Bullock remains optimistic about job growth. On the other hand, the US Dollar is under pressure, with expectations of a Federal Reserve interest rate cut. This comes after mild inflation growth in the U.S. in September, with CPI rising by 0.3% and core inflation by 0.2%. The US Dollar is the most widely traded currency globally, accounting for over 88% of transactions. Its value is significantly influenced by Federal Reserve policies and events like quantitative easing or tightening.

Traders Strategy and Risks

The AUD/USD is currently on a strong upward trend, boosted by positive signs regarding US-China trade relations. This suggests that positioning for further gains may be wise in the short term. Buying short-dated call options with a strike price around 0.6600 could effectively take advantage of this momentum. This optimism is crucial because similar situations occurred during the 2018-2019 trade disputes, where such news often led to sharp rallies in the Australian Dollar. With exports to China reaching a record A$19 billion monthly, any easing of trade tensions would benefit the currency. Therefore, we should monitor any follow-up statements that confirm this trend. The main risk this week centers on Wednesday, with both the Australian CPI release and the Federal Reserve’s rate decision. The overlap of these significant economic events could lead to heightened volatility. Traders might want to consider a long straddle strategy to profit from large price movements in either direction. The US Dollar’s weakness is largely due to strong expectations for a Federal Reserve rate cut. The CME FedWatch Tool currently shows an 85% chance of a 25-basis-point reduction this week, following a noticeable cooling trend in US inflation data throughout 2025, making a dovish shift by the Fed likely. The Australian Q3 CPI data on Wednesday is crucial and could impact the current rally. If inflation comes in higher than expected, above the consensus forecast of 1.1%, it could pressure the RBA to stay hawkish, which might push the AUD/USD even higher. Conversely, a weaker number could reverse recent gains, making put options below 0.6500 a viable hedge against disappointment. Create your live VT Markets account and start trading now.

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