Insights 
VT 
The AUD/USD pair lost some early gains after initial growth due to strong Australian CPI data. The pair continued to trade 0.15% higher, around 0.6600, as traders awaited the Fed’s interest rate announcement and the Trump-Xi meeting.
Australian CPI data revealed inflationary pressures growing by 1.3% quarterly, surpassing forecasts of 1.1%, with an annual increase of 3.2%. This rise lowers the likelihood of further interest rate cuts by the Reserve Bank of Australia this year. Meanwhile, the US’s upcoming Federal Reserve decision and meetings hold potential impacts on the Australian Dollar, especially concerning its trade ties with China.
Interest Rate Speculations
The Federal Reserve is anticipated to lower interest rates by 25 basis points, setting the Federal Fund rate lower to 3.75%-4.00%. Traders will focus on the interest rate outlook, influenced by a lack of major economic data releases due to an ongoing US federal shutdown.
The Fed holds eight scheduled meetings annually to decide on monetary policy with a focus on inflation and employment. Rate changes influence the strength of the US Dollar. If rates are unchanged, the Federal Open Market Committee (FOMC) statement plays a key role in market perception.
The surprisingly strong Australian inflation data suggests the Reserve Bank of Australia is unlikely to cut interest rates further, creating a direct contrast with the US Federal Reserve’s expected rate reduction. This policy divergence is a strong fundamental reason to favour the Australian dollar over the US dollar. For the coming weeks, we should view any dips in the AUD/USD pair as potential buying opportunities.
The case for a weaker US dollar is supported by signs of a cooling American economy, which we see in the latest jobs report from early October 2025 that showed a disappointing gain of only 155,000 jobs. We saw a similar dynamic develop in late 2023, when persistent global inflation kept most central banks on hold while the Fed began signaling an eventual pivot. This historical pattern suggests the dollar may weaken against currencies backed by more hawkish central banks.
Market Volatility and Strategic Opportunities
With major event risk from both the Fed announcement and the Trump-Xi meeting, we are seeing a noticeable increase in implied volatility for AUD/USD options. For derivative traders, this makes strategies like buying call options or using bull call spreads attractive. These approaches allow us to capitalize on potential upside in the currency pair while defining and limiting our maximum risk.
The Australian dollar’s performance is also heavily dependent on its largest trading partner, China. Recent Caixin Manufacturing PMI data has been hovering just over the 50-point expansion threshold, indicating fragile growth that could be easily disrupted. A positive outcome from the leadership meeting would be a significant boost for the Aussie, but any negative headlines could quickly erase its gains.
