Insights 
VT 
The Australian Dollar (AUD) weakens against the US Dollar (USD), with the AUD/USD pair trading around 0.6530, declining by 0.25% on the day. This pullback occurs as the US Dollar receives support following the Federal Reserve’s recent meeting, despite weaker US manufacturing data released earlier in the day.
The US Institute for Supply Management reported the Manufacturing Purchasing Managers’ Index (PMI) at 48.7 in October, down from 49.1 in September, falling short of the expected 49.5. Subcomponent improvements were noted in New Orders and Employment, but the Prices Paid Index decreased to 58, easing cost pressures.
Market Expectations Shift
Despite disappointing data, the US Dollar Index (DXY) holds slightly higher, with market expectations shifting concerning future rate cuts. Such expectations are evidenced by a 68% probability of a rate cut in December, a decrease from over 90% a week ago, according to the CME FedWatch tool.
Ahead of the Reserve Bank of Australia meeting, traders predict the Official Cash Rate will remain at 3.6%. Third-quarter inflation data exceeded expectations, yet RBA Governor Michele Bullock points to a still-tight labour market. Meanwhile, tensions between the US and China and China’s manufacturing slowdown affect regional sentiment.
The Aussie dollar is under pressure, trading near 0.6530 as we head into the Reserve Bank of Australia’s meeting. The US dollar is finding some footing after last week’s Fed meeting, creating a tricky environment. This setup suggests that volatility could be the main play for the next few weeks.
We saw the US ISM Manufacturing PMI dip into contraction territory at 48.7, which normally would weaken the dollar. However, the latest US Non-Farm Payrolls report from Friday, November 1st, 2025, showed the labor market is still solid, which is why the market has pulled back its bets on a December Fed rate cut. This conflict between slowing manufacturing and a tight job market is keeping derivative markets on edge.
Uncertainty in the Market
We are all watching tomorrow’s RBA meeting closely, with the market pricing in a hold. Remember, the Q3 CPI data from October showed inflation came in at a quarterly clip of 1.2%, which was hotter than forecasts and keeps the pressure on the RBA. This stubborn inflation, despite the three rate cuts we saw earlier in 2025, makes a hawkish pause the most likely outcome.
China’s slowing economy remains a major weight on the Aussie, with its manufacturing PMI barely staying in expansion at 50.6. This softness, combined with ongoing concerns about its property sector, limits any significant rally for Australian exports and the dollar. We’ve seen in the past, like during the 2022-2023 slowdown, how sensitive the AUD is to these Chinese data points.
Given the uncertainty, we believe trading options could be more effective than taking outright positions in the spot market. Implied volatility is likely to rise ahead of the RBA decision and the Fed’s December meeting, so strategies that benefit from price swings could be useful. For those anticipating a further drop in AUD/USD, buying puts offers a defined-risk way to position for a move below the 0.6500 level.
