Improved Risk Sentiment

The Australian Dollar (AUD) is leading the G10 currencies thanks to a better risk outlook. This change follows President Trump’s recent optimistic comments about US-China trade relations. In the coming week, we will learn more about the AUD’s future direction, especially with trade talks and the Reserve Bank of Australia’s (RBA) November policy decision on the horizon. Market attention will be on the minutes from the September RBA meeting and Australia’s labor data for September. Currently, the AUD/USD is around 0.65 due to short-covering in favor of the USD. Predictions hint at a potential rise in the AUD/USD as we head into the new year, though fluctuations are expected in the next one to three months. Without new data from the US, it’s hard to predict changes in Federal Reserve (Fed) policy. However, progress in US-China trade could influence US inflation and growth. Ongoing questions about Fed independence and upcoming leadership changes could lead to a drop in the US Dollar. Analysts estimate that the AUD/USD might reach 0.68 within a year. The Aussie dollar is outpacing other major currencies as global economic concerns ease for now. This optimism is driven by a more relaxed tone in recent US-China trade talks, reminiscent of market reactions during the Trump era in the late 2010s. This has pushed the AUD/USD pair to around 0.6650, making it an important currency to monitor. All attention is on the upcoming RBA meeting minutes and the September jobs report due this week. With inflation still quite high at 3.8% last quarter—well above the target—these reports will be crucial for the RBA’s decisions on the 4.35% cash rate on November 4th. Signs of ongoing economic strength could lead the RBA to maintain its firm stance, which would support the Aussie dollar. For the next one to three months, we anticipate a choppy yet contained range, likely between 0.6500 and 0.6750. This situation is favorable for traders considering options strategies like selling strangles or straddles, as there may not be a clear breakout. Pay close attention to the 0.6500 level; if it breaks below, this could indicate that the recent USD strength is returning more strongly than expected.

US Dollar Dynamics

In the US, the recent dip in the dollar appears to be a temporary pause after a lengthy period of strength. With US inflation steady at 3.5% and job growth solid, the Federal Reserve has little reason to hint at rate cuts soon. This sustained strength in the US economy could limit any significant gains in the AUD/USD pair. Looking ahead to 2026, there’s potential for the AUD/USD to rise to around 0.6800. This long-term positive outlook can be played by purchasing longer-dated call options, which provide exposure to upside while minimizing risk. If discussions about the Federal Reserve’s independence resurface— a topic that has led to dollar weakness in the past—this could speed up the AUD/USD’s rise. Create your live VT Markets account and start trading now.

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