Insights 
VT 
The Australian Dollar gained against the US Dollar, breaking a three-day losing streak, amid expectations that the RBA will maintain current interest rates. Despite economic data from Australia and China not swaying its course, China’s Manufacturing PMI decreased from 51.2 in September to 50.6 in October.
Australian data showed mixed results; the TD-MI Inflation Gauge rose by 0.3% in October following a 0.4% rise in September, while building permits surged 12.0% MoM, surpassing forecasts. ANZ Job Advertisements fell by 2.2% in October, continuing a four-month trend.
Fed And Interest Rate Expectations
The Fed’s interest rate uncertainty has reduced expectations of a December rate cut, supporting the US Dollar. The US Dollar Index is strengthening, trading around 99.80, influenced by a reduction in the expected rate cut likelihood.
Technical analysis indicates the AUD/USD trading towards a resistance level at 0.6600, with support at 0.6544. Macroeconomic indicators, including the recent PMI reports from China and Australia, could affect currency performance and monetary policy decisions by the RBA. Quantitative easing and tightening are additional monetary tools influencing the Australian Dollar’s strength.
The Australian dollar is finding support as we expect the Reserve Bank of Australia to keep interest rates on hold tomorrow. However, this is clashing with a stronger US dollar, where expectations for a December Federal Reserve rate cut are fading fast. This fundamental conflict suggests the AUD/USD pair will likely remain volatile and range-bound in the coming weeks.
A key headwind for the Aussie is the slowing manufacturing data from China, a major trading partner. The RatingDog PMI fell to 50.6, continuing a trend of mixed signals from China’s economy which has struggled to maintain momentum since the post-pandemic recovery efforts we saw back in 2023. This weakness will likely limit any major upward moves for the AUD, as confirmed by Australia’s own falling job advertisement numbers.
US Economy Resilience
In the United States, the strong dollar is being fueled by a resilient economy. The US labor market has remained tight, with recent non-farm payrolls data showing job additions of over 250,000, complicating the Fed’s path to cutting rates. We’ve seen Fed funds futures traders slash the odds of a December cut from 93% to 69% in just one week, providing a solid floor for the US dollar.
We are watching the RBA closely after recent inflation data came in hotter than expected, a situation reminiscent of late 2023 when the annual CPI inflation rate hit 4.1%. This gives the RBA justification to remain hawkish, even with a cooling job market. Any surprisingly firm language from the RBA tomorrow could cause a sharp, albeit perhaps temporary, spike in the AUD.
Given the technical picture of the AUD/USD moving sideways within a rectangle pattern between roughly 0.6460 and 0.6630, a suitable options strategy would be to sell volatility. Traders could consider an iron condor, which would profit if the pair remains within this defined range. This capitalizes on the opposing pressures from the RBA and the Fed, which are currently keeping the pair in check.
Alternatively, for those anticipating a breakout after tomorrow’s RBA decision, buying volatility is a viable approach. A long straddle or strangle would allow traders to profit from a significant price move in either direction. This strategy is useful given the uncertainty, as the pair could just as easily break lower on Chinese weakness as it could spike higher on RBA hawkishness.
