The Australian Dollar sees a slight increase against the US Dollar, buoyed by improved trade hopes between the US and China. The anticipation of Federal Reserve interest rate cuts in October further strengthens this advancement.

AUD/USD grows by 0.35%, trading around 0.6520, propelled by optimism on easing trade frictions between Washington and Beijing. Comments from US President Donald Trump about unsustainable high tariffs revive compromise hopes, with planned talks between US and Chinese leaders promising de-escalation.

The Australian Economys Dependency On China

The Australian economy benefits from these dynamics due to its significant commodity exports to China. However, China’s GDP growth has slowed to 4.8% YoY in the third quarter, affecting Australian economic prospects.

In the US, the Dollar remains under pressure as the prolonged government shutdown delays the September CPI report, enhancing expectations for a Federal Reserve rate cut. Markets, using the CME FedWatch tool, predict a 25-basis-point cut in October and another by year’s end, which supports the Australian Dollar amidst global trade progress.

The Australian Dollar’s movements against other major currencies show it strongest against the British Pound. The currency heat map provides percentage changes, with AUD showing notable gains across various pairs.

With the Australian Dollar trading near 0.6520, the current optimism surrounding US-China talks offers a potential short-term lift for the currency. We see this positive sentiment stemming from recent diplomatic channels, which is a different dynamic than the direct presidential talks we saw years ago. This provides a fragile tailwind for commodity-linked currencies like the Aussie.

Changing Federal Reserve Expectations

However, the idea of an imminent Federal Reserve rate cut seems misplaced in the current environment of October 2025. After the aggressive rate hikes we witnessed through 2023 to combat inflation, the Fed is now data-dependent, with the CME FedWatch tool currently indicating over an 80% probability that rates will be held steady this month. A government shutdown delaying key inflation data only adds to this uncertainty, making a surprise cut highly unlikely.

The concern over China’s economy is valid and has arguably worsened since the period of the initial tariff conflicts. China’s latest GDP figures for the third quarter of 2025 came in at 4.5%, missing market expectations and highlighting ongoing issues in its property sector. This continues to act as a significant cap on the Australian Dollar’s potential strength, as Australian export volumes are directly impacted.

For derivative traders, this environment suggests that any upside for the AUD/USD may be limited in the coming weeks. We believe buying November expiry call options with a strike price around 0.6600 could be a prudent way to play any further positive news. This strategy defines our risk to the premium paid while allowing us to capture gains if the pair breaks higher.

Alternatively, a more conservative approach would be to use a bull call spread, which would lower the cost of entry. For instance, one might buy the November 0.6550 call and simultaneously sell the 0.6650 call. This trade benefits from a modest rise in the AUD/USD but acknowledges that the weaker Chinese economic data may prevent a more substantial rally.

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