Insights 
VT 
Impact of RBA and Federal Reserve Policies
The Australian Dollar has strengthened due to cautious comments from the Reserve Bank of Australia (RBA) regarding inflation risks. The AUD/USD increased by 0.40% to about 0.6510. Concerns persist as Australia’s labour market might slow down, with the Unemployment Rate expected to rise to 4.3% in September.
Market participants anticipate a rise of 17,000 in employment figures after a decline of 5,400 in August, with this unemployment change not alarming the RBA unless job conditions worsen sharply. The US Dollar remains pressured. Dovish expectations from the Federal Reserve suggest two rate cuts are likely before year-end, as markets anticipate a reduction in the target range to 3.50%–3.75%.
Fed Chair Jerome Powell’s remarks indicate further monetary easing could occur by October’s meeting. Trade tensions between the US and China continue to impact the Australian Dollar, due to Australia’s dependency on Chinese demand. The performance of global currencies today shows the Australian Dollar’s strength, particularly against the Canadian Dollar, with a respective rise of 0.41%.
The heat map outlines percentage changes between major currencies, revealing variations in exchange rates, such as a 0.14% change between the Euro and the US Dollar.
US Dollar Outlook
We are seeing a clear policy divergence between a concerned Reserve Bank of Australia and a dovish Federal Reserve. This has pushed the AUD/USD pair through the 0.6500 level, a trend supported by the weak US Non-Farm Payrolls report from early October 2025, which showed a gain of only 85,000 jobs. In contrast, Australia’s latest monthly CPI reading for August 2025 came in hotter than expected at 3.9% year-on-year.
The RBA has held its cash rate steady at 4.35% for the last four meetings, and recent commentary suggests another hike is more likely than a cut. This makes the upcoming Q3 CPI release a major catalyst, creating an environment ripe for volatility. We note that implied volatility on one-month AUD/USD options has already risen to 11.5% from 9.2% last month in anticipation of this data.
On the other side of the pair, the US Dollar is weighed down by the Federal Reserve’s clear signal to ease policy. We see market pricing indicating a near-certainty of two 25-basis-point cuts before the end of 2025, a view cemented by Chair Powell’s recent focus on the deteriorating labor market. This expectation of lower interest rates is reducing the appeal of holding US dollars, providing a tailwind for the Aussie.
Given this backdrop, we believe strategies that benefit from a rising AUD/USD are favorable. Buying call options or constructing call spreads on the pair could capture potential upside while defining risk ahead of key data. The immediate focus will be on the Australian employment figures due tomorrow, as a significant deviation from the expected 4.3% unemployment rate could cause a short-term price shock.
