Insights 
VT 
Key Economic Indicators
Attention turns to the Michigan Consumer Sentiment Index and Consumer Inflation Expectations data, set for release at 14:00 GMT. The sentiment index is predicted to decrease to 54.2 from 55.1 in September, suggesting waning consumer confidence.
The Australian Dollar’s next key event is the Reserve Bank of Australia minutes from September’s meeting, due Tuesday. The RBA kept the Official Cash Rate at 3.6% amid inflation concerns.
The Consumer Sentiment Index, released by the University of Michigan, provides insights into consumer spending, a crucial economic driver. It is highly regarded for its timely reflections on consumer attitudes, with higher readings favouring the US Dollar.
We are seeing the US Dollar Index trading firmly around a two-month high of 99.50, which is currently putting pressure on the AUD/USD, holding it near the 0.6550 level. This dollar strength seems driven by short-term factors, including political uncertainty in France and Japan. However, the bigger picture suggests this strength may not last.
Trading Strategies
The market is pricing in an over 80% chance that the Federal Reserve will cut interest rates in its remaining two meetings this year. This view is supported by a softening US labor market, where we saw the unemployment rate tick up to 4.2% in the September 2025 jobs report. This makes the case for a weaker dollar in the medium term as lower rates become a reality.
Today’s preliminary Michigan Consumer Sentiment data will be a critical gauge for us. The forecast of 54.2 is a historically weak number, reminiscent of the consumer pessimism we observed back in 2022, and a poor reading could accelerate expectations for Fed cuts. A number below this consensus would likely be bearish for the US dollar.
On the other side of the trade, we are looking toward next Tuesday’s release of the RBA’s September meeting minutes. With Australia’s latest monthly inflation data coming in at 3.8%, the RBA is expected to hold its cash rate steady. This leaves the Australian dollar highly exposed to shifts in global sentiment and, most importantly, the direction of the US dollar.
Given the clash between current dollar strength and the high probability of future rate cuts, we believe derivative strategies that profit from volatility are attractive. We are looking at buying AUD/USD straddles with November expirations. This position allows us to profit from a sharp move in either direction as the market digests upcoming economic data and central bank signals.
For traders with a stronger conviction that the Fed’s dovish stance will prevail, buying out-of-the-money AUD/USD call options for December could be a cost-effective approach. This strategy provides upside exposure to a potential year-end dollar decline. It also clearly defines our risk if the current dollar rally continues longer than we anticipate.
