Insights 
VT 
The AUD/USD pair declined to around 0.6570 during the European session on Thursday. This occurred as the US Dollar rebounded following the meeting between US President Trump and Chinese leader Xi Jinping.
The US Dollar Index (DXY), reflecting the dollar’s strength against six major currencies, remained steady near 99.20. Trump’s meeting with Xi was described as “amazing,” with China agreeing to export rare earths to the US openly. Additionally, tariffs on Chinese imports were cut from 57% to 47%.
Us China Trade Improvements
US-China trade improvements have increased the US Dollar’s attractiveness. Federal Reserve Chair Jerome Powell’s indication of a potential interest rate cut in December also supported the dollar’s value.
Improved US-China trade relations are beneficial for the Australian Dollar, due to Australia’s export dependence on China. Domestically, doubts persist over the Reserve Bank of Australia (RBA) cutting interest rates this year, given rising inflation.
The Consumer Price Index reported a 1.3% rise in the third quarter, surpassing estimates and the previous 0.7% reading. The US Dollar, involved in over 88% of global forex transactions, is heavily influenced by Federal Reserve policies. Quantitative easing and tightening by the Fed impacts the dollar’s strength.
Looking back, the market reaction to the Trump-Xi meeting in South Korea was a clear signal of the US Dollar’s sensitivity to trade policy. The initial pop and drop in the AUD/USD showed us how quickly improved US-China relations could be priced in as a net positive for the Greenback, even if it seemed counterintuitive for a commodity currency like the Aussie. That day, the DXY held firm around 99.20, a level that set a psychological benchmark for some time.
Current Trade and Inflation Dynamics
As of today, October 30, 2025, the optimism from that period has faded significantly. Recent data shows that US-China bilateral trade has contracted by nearly 15% in the third quarter compared to the same period last year, as disputes over technology and tariff rollbacks have resurfaced. This renewed friction is a major headwind for the Australian economy, pushing the AUD/USD down to the 0.6450 level.
The central bank divergence we saw then has now become much sharper. The US Federal Reserve is signaling a more aggressive stance, as September’s core inflation report came in hot at 3.5%, well above their target. Meanwhile, the Reserve Bank of Australia is in a similar bind, with its own Q3 CPI data showing inflation stubbornly high at 4.2%, forcing it to maintain a hawkish outlook.
For derivative traders, this creates a high-volatility environment for AUD/USD over the coming weeks. The pair is caught between two hawkish central banks but is being weighed down by deteriorating global trade sentiment, making simple directional bets risky. We believe purchasing straddles or strangles could be an effective strategy to capitalize on expected price swings, regardless of the direction.
We remember the whipsaw price action following the tariff reduction announcements and see a similar pattern of headline-driven volatility now. Trading options can help define risk in a market where geopolitical news can invalidate technical setups instantly. Therefore, we are closely watching upcoming employment data from both nations to gauge whether their respective economies can withstand further rate hikes.
