The Australian Dollar is stable at 0.6480, helped by easing trade tensions between the US and China. China will lift 24% tariffs on some US agricultural goods starting November 10, though 10% tariffs will remain. The US Dollar is under pressure due to budget issues and ongoing talks about a government shutdown, creating uncertainty. China’s services sector has slowed down slightly, with the Services PMI falling to 52.6 in October. Meanwhile, Australia’s Services PMI increased to 52.5, marking its 21st month of growth. The Composite PMI dipped to 52.1. The Reserve Bank of Australia is keeping its cash rate at 3.6%, considering inflation trends.

Effect Of The US Government Shutdown

The US government shutdown has reached its sixth week, affecting the US Dollar Index, which hovers around 100.20. This uncertainty has lowered expectations for a Federal Reserve rate cut in December to 69%, down from 90% last week. US labor data was better than expected, with 42,000 private sector jobs added in October. Today’s currency heat map shows the Australian Dollar performing well against the Canadian Dollar. The map reveals percentage changes of major currencies against each other, with the base currency in the left column and the quote currency in the top row. With the Australian Dollar near 0.6480, there’s an opportunity due to mixed pressures. The positive news about China easing tariffs on US agricultural goods supports the AUD. This suggests we should consider strategies that may benefit from a potential rise in the AUD/USD pair in the weeks ahead. The upcoming tariff suspension on November 10th is an important catalyst. The Australian Dollar has been sensitive to US-China trade relations during disputes in late 2010s and early 2020s. Annual agricultural exports from the US to China have historically been over $30 billion, making any relief in this area a significant market mover. Therefore, we should think about using call options or call spreads to take advantage of a potential increase.

US Dollar Impact And Market Reactions

On the other side, the US Dollar is dragged down by the ongoing government shutdown, which is now the longest in US history at six weeks, surpassing the 35-day shutdown of 2018-2019. This uncertainty keeps the US Dollar Index around 100.20. The political deadlock makes shorting the dollar attractive against currencies with a stronger or more stable outlook. However, we need to be cautious as the market is pulling back on expectations of a December Federal Reserve rate cut, with the likelihood now at 69%, down from 90% last week. The unexpectedly strong ADP jobs report, indicating a 42,000 job gain in the private sector, suggests the Fed may delay easing policy. This presents a risk that if the budget impasse is resolved, there could be a quick rally in the US dollar. Given these mixed signals, implied volatility in AUD/USD options has likely increased, making long options more costly. Thus, using defined-risk strategies like bull call spreads could be a smart way to bet on a gradual rise of the Australian Dollar. This strategy allows for profit from a move toward 0.6600 while limiting potential losses if the US resolves its domestic issues sooner than anticipated. Create your live VT Markets account and start trading now.

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