The Australian Dollar weakened against the US Dollar for a second consecutive session. The AUD/USD pair declined as the US Dollar gained support amid efforts to reopen the US government. The Reserve Bank of Australia Deputy Governor, Andrew Hauser, indicated that monetary policy remains restrictive.

Geopolitical Risks and Central Bank Gold Reserves

Assistant Governor Brad Jones warned about underestimated geopolitical risks and signs of fragmentation in central bank Gold reserves. The US Dollar Index paused a five-day losing streak. The US Senate passed a bill to end the government shutdown, pending a House vote and the President’s signature.

China temporarily lifted its ban on certain exports to the US, effective until November 27, 2026. Australia’s Westpac Consumer Confidence improved by 12.8% in November, reaching 103.8. China’s Consumer Price Index rose by 0.2% in October, while the Producer Price Index fell by 2.1%.

The AUD/USD pair traded around 0.6520 on Wednesday. Chart analysis showed the pair at the nine-day EMA, suggesting short-term momentum. A break below the EMA and 0.6500 would weaken the pair, potentially dropping it to 0.6470 or a five-month low of 0.6414. On the upside, breaking 0.6536 would boost medium-term momentum.

The Australian Dollar is facing short-term weakness, but we see this as a temporary condition. The Reserve Bank of Australia is signaling it will keep monetary policy tight, which is supportive for the currency. This contrasts sharply with the US, where markets are increasingly expecting the Federal Reserve to cut interest rates next month.

RBA Monetary Policy and Inflation

We believe the RBA’s cautious stance is justified and will likely continue into the new year. Looking back at the data from late October 2025, Australia’s quarterly CPI inflation was still running at 3.6%, which remains well above the central bank’s target range. This persistent inflation makes it difficult for the RBA to consider easing policy anytime soon.

In the United States, the situation is quite different, creating a clear policy divergence. The expectation for a December rate cut is now priced with a 68% probability, largely because recent economic data shows a cooling trend. We saw this in the October jobs report released earlier this month, which indicated a slowdown in hiring and reinforces the case for the Fed to ease policy.

Given this outlook, we view the current dip in the AUD/USD pair toward the 0.6500 level as a potential entry point for bullish positions. Derivative traders should consider buying AUD/USD call options with strike prices near 0.6600 and expirations in late December 2025 or January 2026. This strategy allows for capitalizing on the expected rise in the pair while managing downside risk.

This positive outlook for the Aussie dollar is further supported by signs of stabilization in China, a key trading partner for Australia. Recent data, such as the Caixin Manufacturing PMI which has been holding just above the 50-point mark separating contraction from expansion, suggests a healthier economic backdrop. China temporarily lifting its ban on certain exports to the US also points to an easing of geopolitical tensions, which is generally positive for risk-sensitive currencies like the AUD.

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