The AUD/USD pair fell to about 0.6570 during the European session on Thursday. This drop happened as the US Dollar rose after a meeting between US President Trump and Chinese leader Xi Jinping. The US Dollar Index (DXY), which measures the dollar’s strength against six major currencies, stayed steady around 99.20. Trump called the meeting with Xi “amazing,” with China agreeing to export rare earths to the US. In addition, tariffs on Chinese imports dropped from 57% to 47%.

Improvements in US-China Trade

The better US-China trade relations have made the US Dollar more appealing. Federal Reserve Chair Jerome Powell hinted at a possible interest rate cut in December, which also helped support the dollar’s value. Stronger US-China trade ties benefit the Australian Dollar since Australia relies heavily on exports to China. However, there are doubts about whether the Reserve Bank of Australia (RBA) will cut interest rates this year due to rising inflation. The Consumer Price Index showed a 1.3% increase in the third quarter, exceeding expectations and the previous 0.7% figure. The US Dollar, involved in over 88% of global forex transactions, is greatly affected by Federal Reserve decisions. The Fed’s quantitative easing and tightening actions influence the dollar’s strength. Looking back, the market’s reaction to the Trump-Xi meeting in South Korea clearly indicated the US Dollar’s sensitivity to trade policy. The quick rise and fall in the AUD/USD showed how swiftly improvements in US-China relations could positively impact the Greenback, despite seeming counterintuitive for a commodity currency like the Aussie. That day, the DXY remained strong around 99.20, setting a psychological benchmark for a while.

Current Trade and Inflation Trends

As of today, October 30, 2025, that optimism has decreased significantly. Recent data reveals that US-China bilateral trade has dropped by almost 15% in the third quarter compared to last year, as disputes over technology and tariff reductions have re-emerged. This renewed conflict is a significant challenge for the Australian economy and has pushed the AUD/USD down to 0.6450. The gap between the central banks has widened. The US Federal Reserve is taking a more aggressive approach, with September’s core inflation report showing a high rate of 3.5%, well above their target. Meanwhile, the Reserve Bank of Australia is facing a similar challenge, with its Q3 CPI data reporting inflation stubbornly high at 4.2%, which keeps them on a hawkish path. For derivative traders, this creates a volatile environment for AUD/USD in the coming weeks. The pair is affected by two hawkish central banks but is struggling due to worsening global trade sentiments, making simple directional bets risky. We suggest buying straddles or strangles as a strategy to benefit from expected price swings, regardless of direction. We recall the erratic price movements after the tariff cuts and see a similar pattern of volatility driven by headlines now. Trading options can help manage risk in a market where geopolitical news can quickly disrupt technical setups. Thus, we are closely monitoring upcoming employment data from both countries to assess whether their economies can withstand further rate hikes. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now