Insights 
VT 
An upcoming meeting between US Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng is scheduled in Malaysia. Tensions between the two nations could impact Australia’s economy due to its reliance on exports to China.
Domestic Attention on Australia’s Q3 CPI Data
Domestic attention is on Australia’s Q3 CPI data, set for release on October 29. Inflation is the rise in prices of goods and services, with headline inflation showing changes month-on-month and year-on-year, and core inflation excluding food and fuel. CPI measures price changes over time, and high inflation often boosts a currency’s value while lower inflation can weaken it.
We are seeing the AUD/USD pair coiled in a tight range around 0.6510, which signals significant pent-up energy ahead of major event risks. This kind of consolidation often precedes a sharp breakout, so holding a simple directional view is risky. The market is clearly waiting for tomorrow’s US Consumer Price Index (CPI) data to make its next move.
The consensus expectation for US inflation to rise to 3.1% is creating a tense atmosphere, especially as recent jobs data from early October 2025 showed wage growth remaining stubbornly high at 0.4% month-over-month. A number at or above expectations could easily send the US Dollar higher and break the AUD/USD below its recent 0.6473 support level. We should be preparing for a potential spike in volatility following that release.
For derivative traders, this setup suggests that options premiums are likely undervalued given the sequence of events. Implied volatility on one-week AUD/USD options has already ticked up to 9.8% from 8.5% earlier in the week, reflecting anticipation. Strategies that benefit from a sharp price move in either direction could be prudent leading into the weekend.
Pressure from Renewed Trade Tensions
Adding to the pressure on the Australian dollar are the renewed trade tensions with China, which we have seen play out before back in the 2018-2020 period. The latest US export controls on software are a serious escalation, and the weekend meeting in Malaysia is unlikely to produce an immediate resolution. This uncertainty typically acts as an anchor on the Aussie dollar, as it weighs on sentiment for its largest trading partner.
This is already being reflected in commodity markets, a key driver for the Australian economy. We have watched iron ore futures, Australia’s biggest export, slide nearly 4% this month to $112 per tonne on the back of weak Chinese industrial data published last week. Continued friction between the US and China will only dampen demand further, capping any potential upside for the AUD.
Finally, we cannot ignore the Australian Q3 CPI data due on October 29. The market is currently pricing in a 60% chance of one final rate hike from the Reserve Bank of Australia in November, and that probability will swing dramatically based on this inflation report. A hot Australian CPI number next week is the main factor that could counter the bearish sentiment and cause a sharp rally in the AUD/USD pair.
