Insights 
VT 
The Australian Dollar rose due to optimism around the US-China trade deal, as US Treasury Secretary Scott Bessent declared that heavy tariffs on Chinese goods were no longer a threat. The AUD/USD edged lower following its jump, as traders eagerly await Australia’s Q3 inflation data to influence the Reserve Bank of Australia’s policy direction. Progress in trade talks led to a consensus between US and Chinese negotiators, hinting at potential beneficial changes for the Australian Dollar owing to Australia’s trade ties with China.
Impact Of US Dollar Weakness
In contrast, the US Dollar is experiencing pressure due to declining inflation figures. The US Bureau of Labor Statistics reported the Consumer Price Index at 3.0% year-over-year for September, falling short of market expectations. This, coupled with a softer core CPI, has fuelled predictions of a Federal Reserve rate cut, with the CME FedWatch Tool marking a 97% likelihood of a rate reduction in October. Meanwhile, Australia’s preliminary October data showed a fall in the S&P Global Manufacturing PMI, while other indices suggested improvement, adding complexity to the economic outlook as the Reserve Bank of Australia contemplates a potential rate cut following a jobless rate spike.
The AUD/USD currently hovers at 0.6530, with technical analysis suggesting potential easing of bearish bias. Resistance is noted at the 50-day EMA of 0.6540, with further gains possible if that is exceeded, while initial support is at 0.6513. The recent percentage changes show the Australian Dollar gaining strength against major currencies, specifically the Japanese Yen. Key factors influencing the Australian Dollar include RBA interest rates, iron ore prices, Chinese economic conditions, and Australia’s trade balance.
The Australian dollar is getting a boost from good news on US-China trade talks, but we see this as temporary. With President Trump and President Xi scheduled to meet on Thursday, any unexpected outcome could quickly reverse these gains. This situation creates significant event risk, making short-term directional bets very risky.
The US dollar is weak because of expectations that the Federal Reserve will cut interest rates, which is supporting the AUD/USD pair for now. Markets are pricing in a nearly 100% chance of rate cuts in both October and December, a scenario we last saw during the Fed’s easing cycle in 2019 when the dollar broadly weakened. This backdrop makes it difficult to bet against the Australian dollar using the US dollar as the other side of the pair.
Strategies For Trading Volatility
However, Australia’s own economy is showing signs of trouble, which should cap the Aussie dollar’s strength. The unemployment rate hitting a four-year high in September is a major concern, and markets are now giving a 67% chance the Reserve Bank of Australia will cut its own rates. We also know from recent data published in early October 2025 that Australian retail sales have missed expectations for two consecutive months, pointing to a cautious consumer.
Given these conflicting signals, we believe the best way to trade is to focus on volatility rather than direction. The upcoming Australian inflation data and the US-China meeting are likely to cause a sharp move, but the direction is unclear. Derivative traders should consider strategies like straddles or strangles, which profit from a large price swing in either direction.
The key levels to watch are the resistance around 0.6550 and support near the 0.6414 low. We can use these levels as guides for setting up options trades that would profit if the pair breaks out of this range. A decisive move above 0.6550 would trigger upside bets, while a fall below 0.6400 would confirm that the Aussie’s fundamental weakness is taking over.
We must also remember that China’s economy remains a risk for the Australian dollar. Recent data from the National Bureau of Statistics of China showed industrial production for September 2025 grew by only 4.1%, missing the 4.4% forecast. This, combined with iron ore prices that have softened over the past quarter, suggests the optimism from the trade deal could be built on a fragile foundation.
