The AUD/USD pair rose by 0.65% to nearly 0.6560 in the late European session on Monday. This increase comes amid hopes for a US-China trade deal following comments by US Treasury Secretary Scott Bessent that Washington might hold back on additional tariffs, with China also delaying rare earth export controls.

Bessent’s remarks followed a meeting with Chinese Premier He Lifeng during the ASEAN summit in Malaysia, sparking optimism about reduced trade tensions. The Australian Dollar benefits from such developments due to Australia’s reliance on exports to China.

Domestic Market Outlook

Domestically, the market is awaiting the Q3 Consumer Price Index data coming out on Wednesday. This data will shape expectations for the Reserve Bank of Australia’s monetary policy.

RBA Governor Michelle Bullock stressed the bank’s commitment to reducing inflation while maintaining job satisfaction. Despite a rise in unemployment to 4.5% in September, Bullock remains positive about jobs.

In contrast, the US Dollar faces pressure amid expectations of a Federal Reserve interest rate cut. This follows mild US inflation growth in September, with CPI rising 0.3% and core inflation by 0.2%.

The US Dollar is the world’s most traded currency, facilitating over 88% of global exchange, shaped heavily by Federal Reserve policies and events like quantitative easing or tightening.

Traders Strategy and Risks

We are seeing a strong upward move in the AUD/USD, fueled by positive signals on the US-China trade front. This suggests positioning for further gains may be prudent in the short term. Buying short-dated call options with a strike price around 0.6600 could be a direct way to capitalize on this current momentum.

This optimism is significant because we’ve seen this pattern before; during the 2018-2019 trade disputes, similar headlines often caused sharp, multi-day rallies in the Aussie. With Australian exports to China recently hitting a record A$19 billion monthly, any reduction in trade friction is a powerful catalyst for the currency. We should therefore watch for any follow-up statements that confirm this de-escalation.

The major risk this week is concentrated on Wednesday, with both the Australian CPI release and the Federal Reserve’s rate decision. Such a confluence of major economic events in a single day creates a strong case for a spike in implied volatility. Traders might consider strategies like a long straddle to profit from a large price move, regardless of the direction.

On the US Dollar side, the weakness is supported by overwhelming expectations for a Fed rate cut. The CME FedWatch Tool is currently pricing in an 85% probability of a 25-basis-point reduction this week. This follows a clear cooling trend in US inflation data throughout 2025, making a dovish Fed pivot seem likely.

The Australian Q3 CPI data on Wednesday is the key domestic variable that could derail the current rally. A hotter-than-expected inflation print, perhaps above the consensus forecast of 1.1%, would increase pressure on the RBA to remain hawkish and could send AUD/USD even higher. Conversely, a soft number could quickly unwind the recent gains, making put options below 0.6500 a viable hedge against disappointment.

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