Insights 
VT 
The AUD/USD pair shows a 0.5% increase, trading near 0.6520 during the European session. The Australian Dollar outperforms peers as the Reserve Bank of Australia may not pursue aggressive monetary easing soon.
RBA Assistant Governor Sarah Hunter speaks at a conference, warning of rising inflation risks. She mentions inflation may be stronger than forecast, with tighter economic and labour conditions than assumed.
Q3 Consumer Price Index Report
The Q3 Consumer Price Index report, set for release later this month, may offer insights into inflation trends. Tensions between the US and China could impact the Australian Dollar due to Australia’s export dependency on China.
This week, focus is on Australia’s September employment data, due Thursday. Expectations show the Unemployment Rate might rise to 4.3% from 4.2% in August.
The US Dollar sees a correction as expectations grow for the Federal Reserve’s interest rate cuts. The CME FedWatch tool indicates a 94.6% chance of a 50 bps reduction in the remaining year.
Fed Governor Michelle Bowman supports further rate cuts amid a cooling job market. She predicts two more cuts before year-end, influencing the US Dollar’s behaviour.
Policy Divergence Between RBA and Fed
The AUD/USD is gaining strength towards 0.6520, and we see this as a direct result of the Reserve Bank of Australia’s hawkish tone. Assistant Governor Hunter’s comments about upside inflation risks suggest the RBA is not in a hurry to cut interest rates. This contrasts sharply with the US Federal Reserve, which is widely expected to continue its easing cycle.
We believe the key theme for the coming weeks is the growing policy divergence between a hesitant RBA and a dovish Fed. The Fed is signaling two more rate cuts in 2025, a stance reaffirmed by Governor Bowman, which has been weighing on the US Dollar. By comparison, we remember the RBA has held its cash rate steady at 4.35% for a prolonged period, since its last hike back in late 2023, reinforcing its data-dependent and cautious approach.
Upcoming data will be critical, with Australian employment figures due this Thursday and the Q3 CPI report scheduled for later this month. We are seeing a rise in short-term implied volatility in the options market as traders brace for these events. The consensus forecast for unemployment is a slight increase to 4.3%, which, if missed, could trigger a significant move.
Given this backdrop, we think buying AUD/USD call options is a sensible strategy to position for further upside. This approach offers a defined-risk way to capitalize on a potentially hotter-than-expected inflation report or a surprise in the jobs data. For instance, a stronger than expected CPI print, similar to the sticky 3.6% annual rate we saw reported for the Q1 2025 period, would likely reinforce the RBA’s hawkish stance and push the currency pair higher.
Alternatively, for those wanting to capitalize on the elevated volatility, selling out-of-the-money put spreads could be attractive. This strategy allows us to collect premium while expressing a view that the AUD/USD will likely remain supported above key levels, like 0.6400, through the upcoming data releases. It’s a way to benefit if the pair moves higher, sideways, or only slightly lower.
We must also watch the broader global environment, particularly trade relations between the United States and China. Australia’s reliance on exports to China means any negative headlines could quickly cap the Aussie dollar’s gains. This remains a significant external risk that could override domestic factors.
