The AUD/USD pair is trading at approximately 0.6555, up by 0.11%, as the Australian Dollar gains strength. This increase comes just before the Reserve Bank of Australia’s (RBA) monetary policy announcement, where the Official Cash Rate is expected to remain steady at 3.6%. Recent data from Australia indicates that inflation is rising more quickly than expected. The Producer Price Index rose by 1% in Q3, exceeding the forecast of 0.8%. Consumer inflation during the same period increased by 1.3%, also above expectations.

Strengthening US Dollar

At the same time, the US Dollar is gaining strength due to shifting expectations from the Federal Reserve. The US Dollar Index, which measures its performance against six currencies, hit a three-month high near 99.90. The likelihood of the Federal Reserve cutting interest rates by 25 basis points in December has dropped from 94.4% to 67.8%. The RBA announces its interest rate decisions eight times a year. An increase in rates is typically seen as positive for the Australian Dollar. Conversely, if the RBA takes a softer approach, such as keeping rates unchanged or lowering them, it usually negatively impacts the AUD. Currently, the Aussie dollar is strengthening against the US dollar, trading near 0.6720 as we start the week. This rise comes just before the RBA’s interest rate decision on November 4th, 2025. The recent boost is primarily due to last week’s Q3 inflation report, which was stronger than expected. The quarterly CPI figure reached 1.0%, beating the market consensus of 0.8% and pushing the annual rate to a stubborn 3.8%. This data suggests that the RBA is unlikely to signal rate cuts, increasing the pressure to maintain rates at 4.35% or even consider another hike. We observed a similar scenario in late 2023, where persistent inflation forced central banks to stay hawkish longer than anticipated.

Volatility in the Market

Meanwhile, we can’t overlook the US dollar, which is finding support after a period of weakness. The latest US jobs report showed a strong addition of 210,000 new jobs, significantly above forecasts, resulting in a low unemployment rate of 3.7%. As a result, the chances of a Federal Reserve rate cut in early 2026 have decreased from over 70% to just under 50% in the past week, according to futures markets. For derivative traders, the uncertainty before the RBA meeting is pushing implied volatility higher on AUD/USD options. We should explore strategies that benefit from substantial price movements in either direction, such as buying straddles or strangles. These strategies would profit whether the RBA surprises with a hawkish stance or a dovish statement, as both could lead to significant price swings. Alternatively, if we think that the market has already priced in a hawkish hold from the RBA, we might consider selling out-of-the-money options. This could involve using strategies like an iron condor to collect premium, betting that the AUD/USD will stay within a certain range after the announcement. The struggle between the hawkish RBA and the firm US dollar may keep the pair steady for now. Create your live VT Markets account and start trading now.

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