Insights 
VT 
The AUD/USD is trading slightly higher, nearing 0.6500, as the US Dollar remains subdued. The easing of US-China trade frictions has benefited the Australian Dollar. Hopes of reducing tensions received a boost from a statement by US President Trump on tariffs.
Upcoming Meeting
The upcoming meeting between Trump and Chinese leader Xi Jinping in South Korea is still on schedule. Trade tensions surged after Beijing’s export controls on rare earth minerals, leading to the US imposing 100% tariffs on Chinese imports. Australia’s economy, sensitive to these tensions due to its export reliance on China, finds relief in the improving relations.
The subdued start of the week for the US Dollar has shifted focus towards the yet-to-be-released US Consumer Price Index (CPI) data for September. This data will greatly impact the market predictions about the Federal Reserve’s upcoming monetary policy decisions. The current market consensus suggests a fully priced-in 25-basis-point rate cut for this month’s policy meeting.
The US Dollar is viewed as the global reserve currency and holds significant sway in international markets. Its value is heavily influenced by Federal Reserve policies on interest rates and inflation control. The Fed’s measures like quantitative easing and tightening have direct impacts on the currency’s strength and perceived stability in global financial systems.
We are seeing the AUD/USD pair hold near the 0.6500 level as the US Dollar shows some weakness. This move is supported by a slight thaw in US-China economic tensions and growing certainty that the Federal Reserve will cut interest rates. The market appears to be positioning for a risk-on environment, which typically benefits the Australian Dollar.
Positive Sentiment
The positive sentiment around the Aussie is linked to recent diplomatic talks which have eased fears of new tariffs. Given that Australian Bureau of Statistics data from Q2 2025 showed exports to China still account for over 30% of Australia’s total exports, any sign of stability is a significant boost. We believe this dependency makes the AUD highly sensitive to news flow from Beijing and Washington.
On the other side of the pair, the US Dollar is trading cautiously ahead of key inflation data for September. Following the last CPI reading of 2.8% year-over-year for August, the market is looking for confirmation that inflation is under control, justifying a Fed pivot. According to the CME FedWatch tool, we are seeing an 85% probability of a 25-basis-point rate cut at the FOMC meeting on November 5th.
For derivative traders, this environment suggests a bullish bias for AUD/USD in the coming weeks. Buying call options with a strike price around 0.6550 or 0.6600 could be an effective way to play potential upside, especially if the upcoming US CPI data comes in soft. This strategy would capitalize on a dovish Fed confirmation while limiting downside risk.
However, we note that one-month implied volatility for the pair remains moderate, below the peaks seen during the 2023 hiking cycle. This suggests options are not excessively expensive, making them useful for hedging as well. Traders holding short positions might consider buying out-of-the-money calls as a cheap hedge against a sharp upward move post-Fed meeting.
