Insights 
VT 
The Australian Dollar (AUD) strengthens against the US Dollar (USD) after the TD-MI Inflation Gauge data shows a 0.4% rise in September, following a 0.3% decrease in the previous month. Annual inflation increased to 3% from 2.8%, suggesting challenges for the Reserve Bank of Australia’s (RBA) 2–3% target.
The RBA maintained its Official Cash Rate (OCR) at 3.6% in September, noting persistent inflation, particularly in market services, and a tight labour market. Traders anticipate further insights from RBA officials’ speeches this week concerning the central bank’s policy.
Us Dollar Index And Potential Fed Rate Cuts
The US Dollar Index (DXY) is trading around 98.00; however, the likelihood of US Federal Reserve (Fed) rate cuts in October and December could affect its strength. A government shutdown adds to USD concerns, delaying economic reports like September’s jobs data.
US private sector payrolls decreased by 32,000 in September, with a 4.5% annual pay growth. Job Openings slightly increased to 7.23 million in August, while hiring rates declined to 3.2%.
Australia’s Trade Surplus reduced significantly to 1,825 million MoM in August, with exports down by 7.8%. The AUD/USD pair remains around 0.6610, with technical analysis indicating a bullish trend within an ascending channel.
Key drivers for the AUD include RBA interest rates, Iron Ore prices, and the Chinese economy’s performance. A stronger Chinese economy boosts Australian exports and AUD value, while Iron Ore prices significantly affect Australia’s Trade Balance.
The RBA’s interest rate policy, Iron Ore prices, and economic conditions in China play a pivotal role in determining the direction of the AUD.
Given the current divergence, we should position for potential Australian Dollar strength against a weakening US Dollar. Australian inflation is proving sticky, with the latest TD-MI gauge for September showing a 3.0% annual increase, right at the top of the RBA’s target range. This puts pressure on the Reserve Bank of Australia to maintain a hawkish stance, even after holding rates steady at 3.6% last month.
In contrast, the US Federal Reserve appears ready to start cutting interest rates, with markets pricing in a 95% chance of a cut later this month. This expectation is fueled by weak economic signals, such as the surprising decline of 32,000 private payrolls shown in the September ADP report. The ongoing US government shutdown only adds to this uncertainty, delaying key economic data and weighing on the dollar.
Supporting The Aussie Dollar
We’ve seen this pattern before, particularly in late 2019, when a slowdown in the US labor market preceded a series of Fed rate cuts. The current hiring rate, which has fallen to its lowest level since June 2024, mirrors that kind of slowdown. This historical context strengthens the case for anticipating a more dovish Fed in the coming weeks.
Supporting the Aussie dollar, demand from China for key exports appears resilient for now. Recent customs data from China showed a slight uptick in iron ore imports, and prices for the commodity have remained firm above $115 per tonne. This helps to offset some of the concerns from Australia’s recently narrowed trade surplus.
From a technical standpoint, the AUD/USD pair remains in a clear ascending channel, suggesting the bullish trend is intact. The Relative Strength Index is above 50, supporting further upward movement. We should view the current level around 0.6610 as a potential entry point for bullish positions.
For derivative traders, this outlook favors buying AUD/USD call options with strike prices approaching the 12-month high of 0.6707. Alternatively, selling put options with a strike price below the immediate support level of 0.6600 could be a viable strategy to collect premium. These positions would profit from the expected rise in the currency pair based on monetary policy divergence.
We must also manage risk, as a sudden resolution to the US government shutdown or surprisingly strong jobs data, once released, could cause a sharp reversal. The lower boundary of the ascending channel, around 0.6550, serves as a critical support level. A break below this would signal a change in the current trend and require us to reconsider our bullish bias.
