Insights 
VT 
Australia’s October preliminary S&P Global Manufacturing PMI fell to 49.7 from 51.4. Conversely, the S&P Global Services PMI rose to 53.1 from 52.4, with the Composite PMI at 52.6, up from 52.4.
At the time, AUD/USD was up 0.41%, trading at 0.6515. Various factors influence the Australian Dollar (AUD), including interest rates set by the Reserve Bank of Australia (RBA), the price of Iron Ore, and China’s economic health.
The Impact of the RBA and China
The RBA’s interest rate decisions impact the Australian Dollar by affecting lending rates and inflation. The Chinese economy, being Australia’s largest trading partner, also influences the AUD. A thriving Chinese economy boosts Australian exports, lifting the AUD’s value.
Iron Ore prices, as Australia’s largest export, significantly affect the AUD. Rising Iron Ore prices increase demand for the AUD, while falling prices have the opposite effect. Australia’s Trade Balance also impacts the AUD’s value, with positive balances strengthening it and negative ones weakening it.
The latest data presents a mixed signal for the Australian economy. We see the manufacturing sector is now in contraction at 49.7, which is a clear point of weakness. However, this is being offset by a resilient services sector, pushing the overall composite reading higher to 52.6 and suggesting the broader economy is still expanding.
This division in the economy complicates the outlook for the Reserve Bank of Australia (RBA). With the latest quarterly inflation figures from Q3 2025 still showing stubbornness above the RBA’s target band, this report is unlikely to push them toward easing policy. Derivative markets should therefore continue to price in a hawkish hold from the RBA for the remainder of the year.
External Economic Influences
Looking at external factors, China’s economic performance continues to be a major source of uncertainty, a trend we have watched closely since the uneven recovery that began back in 2023. Despite this, demand for key Australian exports has kept iron ore prices resilient, trading recently near $115 a tonne. This support for our terms of trade provides a solid floor for the Australian dollar against most currencies.
The strength in AUD/USD, which is trading around 0.6515, is more a story about US dollar weakness than Australian dollar strength. The market is increasingly anticipating that the US Federal Reserve will begin cutting interest rates sooner than the RBA, a policy divergence that has been building over the past year. This interest rate differential makes holding the Australian dollar more attractive for now.
Given these conflicting signals—domestic manufacturing weakness against services strength and international support—we expect the AUD to be caught in a range. Traders could consider strategies that profit from this stability and defined risk, such as selling options far from the current price. This approach takes advantage of the market’s current indecision.
