The Australian Dollar (AUD) strengthened following the Reserve Bank of Australia (RBA) Governor Michele Bullock’s comments, suggesting no immediate need for rate cuts. This development, alongside a mild downturn in the US Dollar (USD), has driven the AUD/USD pair towards its highest level since mid-September, supporting a bullish market outlook.
The RBA held the Official Cash Rate at 3.6% and emphasised attentiveness to future data and risks. Governor Bullock noted the importance of inflation and employment data for future meetings, suggesting the possibility of future tightening if conditions require. Market repricing indicates a pause in rate cuts, given persistent inflation, which is above the RBA’s target.
Contrasting Monetary Policies
Expectations of a dovish Federal Reserve decision contrast with the RBA’s stance, supporting AUD/USD movement. The US PCE Index showed a 2.8% rise in September, aligned with predictions, reinforcing these Fed expectations. Traders anticipate a 90% likelihood of a rate cut by the Fed, limiting the USD’s recovery.
The AUD/USD holds steady above a key support region near 0.6615, with potential for further growth. Failure to uphold this level could shift market sentiment to bearish, with the next crucial support near 0.6500. The pair’s movement is also influenced by Australia’s trade relations, particularly with China, and export commodities like iron ore. The economic health of China influences demand for Australian exports, impacting the AUD’s value. The trade balance, in turn, plays a role, as a positive balance strengthens the AUD due to increased foreign demand for Australian goods.
We are seeing a clear split in policy between the Reserve Bank of Australia and the US Federal Reserve, which presents a significant opportunity. The RBA is sounding unexpectedly firm, even talking about potential rate hikes, while the Fed is poised to cut rates again tomorrow. This divergence is the main driver for our positive outlook on the Australian dollar against the US dollar.
To make this view more credible, we can look at the latest inflation data. Australia’s most recent monthly CPI for October 2025 came in at a sticky 5.1%, remaining stubbornly above the RBA’s 2-3% target band. In contrast, the latest US Core PCE Price Index from October 2025 cooled further to 2.7%, reinforcing the market’s expectation for a Fed rate cut.
Trading Strategies for AUD/USD
This policy difference is already pushing the AUD/USD pair towards its recent highs, and we anticipate this trend will continue. The Fed’s expected 25 basis point rate cut tomorrow should place further downward pressure on the US dollar. We should therefore position for an extension of the Aussie’s strength in the coming weeks.
For those trading options, buying AUD/USD call options with a strike price around the 0.6700 level could be a viable strategy to profit from the expected upward move. A more conservative approach would be a bull call spread to cap costs while still benefiting from a rise. These trades align with the technical picture suggesting a test of the year-to-date peak is possible.
Given the key economic events this week, including the Fed meeting and Australian jobs data on Thursday, we expect a rise in short-term implied volatility. This makes selling options attractive, so we could consider selling cash-secured puts or bull put spreads with a strike near the 0.6600 support level. This strategy allows us to collect premium while positioning for the expected upside.
Fundamental factors outside of central bank policy also support a stronger Aussie dollar right now. Iron ore futures have remained strong, trading around $138 a tonne on the Singapore Exchange, buoyed by stable demand. Furthermore, China’s latest Caixin Manufacturing PMI for November 2025 edged up to 50.7, signaling some resilience in Australia’s largest trading partner.
With the RBA looking like it is done cutting rates and commodity prices holding firm, the path of least resistance for the AUD/USD appears to be higher. We will be watching the support around the 0.6600 level as a potential area to add to bullish positions. The upcoming Australian employment report on Thursday will be the next key domestic data point to watch.
