The Australian Dollar (AUD) dropped further against the US Dollar (USD) as China’s Trade Balance for October fell to CNY640.4 billion from CNY645.47 billion. This change was influenced by a 0.8% decrease in China’s exports and a 1.4% increase in imports. In USD, China’s Trade Surplus was less than expected, reporting +90.07 billion against the predicted +95.60 billion. In contrast, Australia’s Trade Surplus for September was a strong 3,938 million month-over-month, exceeding forecasts, with exports up by 7.9%.

The US Dollar Index and Job Cuts

Despite some challenges, the US Dollar Index (DXY) bounced back to around 99.80. This improvement came after a report showed notable job cuts in the US. The ADP Employment Change increased by 42,000 in October, while the US ISM Services PMI rose to 52.4. The ongoing US government shutdown has not been resolved, having failed to progress 14 times. St. Louis Fed President highlighted persistent inflation issues, while Fed Chair Jerome Powell is wary of another rate cut in December. China’s RatingDog Services PMI decreased to 52.6 in October, while the S&P Global Australia Services PMI slightly increased to 52.5. The Reserve Bank of Australia kept its Official Cash Rate at 3.6%, as inflation remains a concern. Currently, the AUD/USD trades around 0.6470. Support levels are seen at 0.6460, with resistance levels at the 0.6508 and 0.6535 EMAs.

Technical Levels and Market Predictions

With China’s weaker export data, the Australian dollar faces immediate downward pressure. The AUD/USD pair is testing the lower end of its recent range, and this trend may persist in the coming days. Traders in derivatives may want to consider short-term bearish positions, such as buying puts with targets at the 0.6460 support level. However, iron ore futures, crucial for Australian export revenue, have remained strong, trading above $130 per tonne on the Singapore Exchange for most of the past quarter. This strength indicates that Chinese demand for raw materials is stable, which could help support the Aussie dollar. Thus, aggressive bearish bets beyond the established range could be risky. Conversely, the US dollar faces uncertainty due to the ongoing government shutdown and mixed economic signals. The latest Challenger report indicated a significant rise in job cuts, increasing speculation of a Federal Reserve rate cut in December. The volatility observed in 2023 shows how quickly market sentiment regarding the Fed can change, making long-term strategies on the dollar complex. This uncertainty is worsened by the data blackout caused by the shutdown, complicating the Federal Reserve’s decision-making process. Fed Chair Powell has expressed a cautious, data-dependent approach; however, the lack of reliable data may keep the central bank on hold. This situation could lead to unexpected spikes in volatility for the US dollar. Meanwhile, the Reserve Bank of Australia remains steady, with Governor Bullock clearly stating that rate cuts have not been on the table. This difference in monetary policy—RBA sounding firm while the Fed considers easing—should limit the downside for the AUD/USD pair. The interest rate gap provides support for the pair. Considering that technical indicators show a consolidating range and fundamentals are pulling in opposite directions, strategies that benefit from volatility are appealing. We should look into buying straddles or strangles on AUD/USD with December expiries to take advantage of a potential breakout after the Fed’s meeting. This strategy would be profitable whether the pair sharply rises or falls. For those who believe the range will hold, selling options can be a good way to earn premium. Selling out-of-the-money puts near the 0.6460 support and out-of-the-money calls near the 0.6630 resistance could be effective. This strategy banks on the conflicting economic factors keeping the currency pair stable in the upcoming weeks. Create your live VT Markets account and start trading now.

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