The Australian Dollar has dropped to 0.6550 as the US Dollar gains strength due to a trade truce and firm comments from the Federal Reserve (Fed). A meeting between US President Trump and Chinese President Xi Jinping reached a one-year trade truce that lowered US tariffs on Chinese goods from 57% to 47%. In return, China has agreed to restart US soybean purchases and allow rare earth exports to the US, reducing trade tensions and supporting a stronger US Dollar. The Federal Reserve has cut its benchmark rate by 25 basis points to a range of 3.75% to 4.00%. Chair Jerome Powell’s comments have also been seen as hawkish, driving up US Treasury yields. He indicated that another rate cut in December is uncertain, further strengthening the US Dollar.

Reserve Bank of Australia and Inflation

In Australia, the Reserve Bank of Australia (RBA) is not expected to lower its policy further. Australian inflation increased by 1.3% from the previous quarter, which exceeded expectations and lowered the likelihood of a rate cut. Markets now anticipate that the RBA will keep its current policy due to ongoing inflationary pressures. Upcoming data, including Australia’s third-quarter Producer Price Index and China’s Purchasing Managers Indexes, could influence the Australian Dollar. Today, the Australian Dollar performed best against the Japanese Yen. We see that the US-China trade truce and hawkish Federal Reserve comments pushed the AUD/USD down to 0.6550, even with strong Australian inflation data. This shows that the US Dollar’s direction, influenced by key global events and Fed policy, often affects the currency pair more than domestic news from Australia.

Current Economic Dynamics

As of today, October 30, 2025, the situation is similar but with different reasons. The latest US core PCE inflation data, released last week, showed a stubborn rate of 3.7%. This has led Fed officials to indicate that rates will likely stay high into 2026, a stark contrast to the earlier policy easing and contributing to the strength of the US Dollar. In comparison, Australia’s economic outlook is weaker. The inflation report for Q3 2025 revealed only a 0.8% quarterly increase in CPI, leading markets to foresee a 65% chance of an RBA rate cut in the first half of next year. This difference between a hawkish Fed and a possibly dovish RBA poses a significant challenge for the Australian Dollar. Additionally, global trade sentiment is fragile, putting pressure on commodity-linked currencies like the Australian Dollar. Iron ore prices, a key Australian export, have fallen 12% over the last month to $105 per tonne due to renewed concerns over demand in Chinese real estate. This is a significant shift from the optimism following the earlier trade truce that increased soybean and other commodity purchases. For derivative traders, this environment suggests a bearish outlook for the AUD/USD pair in the coming weeks. Buying put options on the Australian Dollar may offer downside exposure while managing risk if market sentiment shifts. With rising implied volatility on AUD options, the market appears to be bracing for a potential dip below the 0.6400 support level. Create your live VT Markets account and start trading now.

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