The Australian Dollar has pulled back from earlier gains as traders remain cautious ahead of the Federal Reserve’s policy decision. Strong Australian inflation data has lessened the probability of further rate cuts by the Reserve Bank of Australia. AUD/USD is trading near 0.6600, up 0.30% for the day after reaching a high of 0.6617, but still under 0.6630. The market is waiting for the Federal Reserve’s policy announcement, which is widely expected to announce a 25-basis-point cut, lowering the rate to between 3.75% and 4.00%.

Surprise in Australian Inflation

Australia’s inflation figures have taken markets by surprise, with the Consumer Price Index (CPI) rising by 1.3% quarter-over-quarter and 3.2% year-over-year in Q3. This reduces expectations for immediate rate cuts from the Reserve Bank of Australia. Analysts from Commerzbank and Standard Chartered suggest minimal rate cuts in the short term, indicating that the RBA’s cutting cycle may be over. The Australian Dollar’s performance also depends on global views towards China and the meeting between US President Donald Trump and Chinese leader Xi Jinping. A trade agreement could help strengthen risk-sensitive currencies like the AUD. US economists predict a cautious 25-basis-point cut by the Fed. The direction of the AUD/USD pair will likely be influenced by Jerome Powell’s announcement and the outcome of the Trump-Xi meeting. Reflecting on the Trump presidency reminds us how market drivers can change. Back then, speculation focused on a Fed rate cut and a specific Trump-Xi meeting, keeping AUD/USD below 0.6630. Today, the situation is completely different, necessitating a shift in strategy. The current interest rate environment in late 2025 is quite distinct from the previous easing cycle discussed. The Federal Reserve’s key rate is stable between 4.50% and 4.75%, while the Reserve Bank of Australia is steady at 4.10%. The conversation is no longer about when the next cut will happen but rather which central bank will hold higher rates for a longer time.

Diverging Geopolitical Landscape

The recent inflation data reflects this new reality. The US Consumer Price Index for September 2025 was at 3.1%, while Australia’s was at 3.4%. These ongoing, above-target inflation rates validate the cautious approaches of both central banks. As a result, the AUD/USD pair has been trading within a narrow range, recently around 0.6750. For derivatives traders, this indicates that selling volatility might be a smart strategy in the coming weeks. Since both the Fed and RBA appear to be in a holding pattern, major price movements in AUD/USD seem unlikely. Strategies such as selling short-dated straddles could capitalize on this anticipated stability. The geopolitical landscape has transformed since the trade tariff disputes of the late 2010s. Today, US-China relations are more focused on strategic competition in technology and securing supply chains. This creates a prolonged uncertainty that tends to dampen risk appetite, unlike the sharp price swings seen during key meetings in the past. In this context, preparing for a future policy change with longer-dated options is another viable strategy. If we expect the Australian economy to weaken before the US economy, purchasing medium-term AUD/USD call options for mid-2026 might be worthwhile. This approach allows us to get ready for a potential RBA rate cut cycle while managing risk effectively. Create your live VT Markets account and start trading now.

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