The AUD/USD currency pair rose to nearly 0.6580, hitting a two-week high after strong Australian jobs data was released. In October, Australia added 42.2K jobs, well above the expected 20K, and the unemployment rate fell to 4.3%. During the European trading session, the AUD gained strength thanks to this positive labor market news. The Australian Bureau of Statistics reported a significant rise in employment, with the unemployment rate down from 4.5%.

Reserve Bank of Australia’s Interest Rate Decisions

This strong Australian labor market has sparked discussions about the Reserve Bank of Australia’s (RBA) interest rate plans. In 2023, the RBA has lowered its Official Cash Rate by 75 basis points, bringing it to 3.6%. At the same time, the US Dollar is facing pressure with expectations that the Federal Reserve will cut interest rates this year. The US Dollar Index fell to about 99.30, its lowest point in nearly two weeks, influenced by a 67% chance of a December rate cut according to the CME FedWatch tool. The US Dollar is the most traded currency worldwide and is heavily affected by the Federal Reserve’s policies. Changes in interest rates by the Fed have a significant impact on the Dollar’s value, with cuts typically leading to a weaker Dollar.

Central Bank Policy Divergence

Today’s strong Australian job report indicates a clear difference in central bank policies that can be leveraged. The RBA has little reason to lower its cash rate of 3.6%, especially with unemployment now at 4.3%. This stands in stark contrast to the US Federal Reserve, which is expected to lower rates again next month. This divergence is strengthening the case for a higher AUD/USD. In late 2023, we saw similar stability in the Australian job market, showcasing consistent economic strength. Recent data from the Australian Bureau of Statistics backs this up, with annual wage growth recently rising to 4.1%, which supports the RBA’s more aggressive stance. In contrast, the US Dollar is weakening for valid reasons. Recent US inflation data showed the core Personal Consumption Expenditures (PCE) price index, the Fed’s favored measurement, eased to 2.8% year-over-year. This gives the Fed room to continue cutting rates to help the slowing economy. For derivative traders, this scenario makes buying AUD/USD call options appealing. This strategy allows investors to gain from potential upward movement while limiting maximum losses to the premium paid for the option. It’s a defined-risk method to capitalize on the current clear trend. Consider call options expiring in January or February 2026, which provides ample time for this trade to develop past the December Fed meeting. A strike price of around 0.6600 or slightly higher could offer a good balance of risk and reward, leveraging the anticipated momentum. However, we must stay alert for any unexpectedly hawkish remarks from Fed officials or a surprise spike in US job numbers next month. To manage this risk, we could employ a bull call spread to reduce the initial trade cost. This involves buying a call option and simultaneously selling another call at a higher strike price. Create your live VT Markets account and start trading now.

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