Insights 
VT 
The Australian Dollar weakened following the US Federal Reserve’s decision to cut interest rates by 25 basis points. Fed Chair Jerome Powell’s remarks dampened expectations for a December rate cut, with the AUD/USD trading at 0.6569, down 0.25%.
In a press conference, Powell noted the diversity of views within the Federal Open Market Committee (FOMC) regarding future interest rates. He suggested the current rate might be close to neutral, aligned with September’s Summary of Economic Projections.
Federal Reserve Decision
Most Fed officials supported the rate cut to 3.75%-4%, with dissent from two members. One voted for a deeper cut, while the other wanted to maintain rates.
The Federal Reserve stated that economic activity is expanding moderately, with a low unemployment rate despite slowing job gains. Inflation remains somewhat elevated. They also announced the cessation of their aggregate securities holdings reduction by December 1, as part of policy adjustments.
Australian inflation reports had initially pushed the AUD/USD higher, amid speculation that the Reserve Bank of Australia might hold rates. However, the Fed’s hawkish stance limited the Australian Dollar’s gains.
The Australian Dollar displayed varying strengths against major currencies, notably stronger against the British Pound. The heat map illustrates these currency percentage changes, providing a detailed comparison.
Currency Fluctuations
We are seeing a familiar pattern unfold as the US Federal Reserve signals a cautious approach for the coming months. The memory of their previous “hawkish cut” serves as a key lesson, where the Fed’s forward guidance proved more impactful than the rate cut itself. This dynamic is creating a clear policy divergence between a firm Fed and a potentially easing Reserve Bank of Australia.
Recent US inflation data for September 2025 showed core CPI remaining stubborn at 3.5%, while the latest jobs report added a solid 190,000 non-farm payrolls. These figures give the Fed little reason to signal further easing, reinforcing the dollar’s strength. The market is now reflecting this, with the CME FedWatch Tool showing that traders have lowered the probability of a December 2025 rate cut to just 20%.
In contrast, Australia’s economic data is telling a different story, with the latest quarterly inflation report for Q3 2025 coming in cooler than expected at 3.2%. This has bolstered expectations that the RBA may be forced to consider rate cuts in the first quarter of 2026. This growing divergence puts sustained downward pressure on the AUD/USD, which is now struggling to maintain support above the 0.6500 level.
For derivative traders, this environment suggests that buying put options on the AUD/USD offers a strategic way to position for potential further weakness. Implied volatility for AUD/USD options has ticked up to a three-month high of 11.2%, indicating that the market is anticipating a larger price swing ahead. A bear put spread could be considered to cheapen the cost of entry while still capitalizing on a downward move.
This is not just an Australian Dollar story; it is a US Dollar strength story. We saw a similar dynamic play out through much of 2024, when broad dollar strength weighed on most major currencies for an extended period. Therefore, traders might also consider strategies that benefit from a stronger dollar against other currencies, such as selling call options on pairs like the EUR/USD.
