Insights 
VT 
The AUD/USD is on a four-day climb, influenced by a weakening US Dollar and increasing expectations of a September cut in US Federal Reserve rates. Markets are anticipating the Reserve Bank of Australia (RBA) to lower its cash rate by 25 basis points on 12 August, potentially reducing it to 3.60%.
Currently, the AUD/USD trades around 0.6520, poised for an approximate 0.80% weekly gain. The US Dollar Index hovers near a two-week low at about 98.00, affecting the Greenback’s value against other major currencies.
RBA Rate Expectations
Following its last meeting on July 8, the RBA unexpectedly maintained the cash rate at 3.85%. Economists anticipate the rate might drop to 3.10% by 2026. The major Australian banks forecast this year’s end rate at 3.35%.
The RBA may soon signal that its rate-cutting is nearing completion. External risks, such as US-China tariff tensions, are flagged by the RBA Governor. The US-China trade negotiations continue, with optimism about extending the tariff truce.
Next week holds key events for the AUD, including the RBA decision, Australian labour market figures, and the Q2 Wage Price Index. US data will influence potential Fed rate cuts, while US-China talks may affect AUD/USD volatility.
Market Implications and Strategy
With the AUD/USD climbing for four straight days, we are positioning for next week’s key events. The market has already priced in a high chance of a 25 basis point rate cut from the Reserve Bank of Australia on Tuesday, August 12th. Our focus should therefore be on the RBA’s forward guidance, as any signal that the cutting cycle is nearing its end could trigger a sharp rally.
The case for an RBA cut was strengthened by the latest Q2 2025 inflation data, which showed headline CPI easing to 3.4%, down from 3.6% in the previous quarter. While this is a move in the right direction, it remains above the RBA’s target band, suggesting they will proceed cautiously. Looking back to the policy divergences of late 2024, we learned that the central bank’s tone can matter more than the cut itself.
On the other side of the pair, the US Dollar’s weakness is providing a significant tailwind for the Aussie. The soft US jobs report for July, which showed non-farm payrolls at just 155,000 against an expected 190,000, has cemented expectations for a Federal Reserve rate cut in September. The US Dollar Index’s slide below 98.00 reflects this growing conviction.
We should also note that underlying commodity prices are offering support for the AUD. Iron ore prices have shown surprising strength, recently climbing back to $118 per tonne on signs of stabilizing industrial demand from China. This provides a fundamental floor for the currency that could cushion the impact of a dovish RBA.
Given this setup, we see opportunity in buying near-term AUD/USD call options to play potential upside volatility. These would profit if the RBA’s statement is less dovish than expected or if US-China trade talks yield positive headlines. A break above the 0.6550 resistance level could be the initial target for such a move.
To manage risk, we must also watch the Australian labor market data and Q2 Wage Price Index due later next week. Any unexpected weakness in these figures could quickly erase gains following the RBA meeting. Therefore, holding some protective put options or setting tight stop-losses on long positions would be a prudent strategy.
