The Australian Dollar weakens to 0.6550 as the US Dollar strengthens due to a trade truce and hawkish Federal Reserve (Fed) comments. A meeting between US President Trump and Chinese President Xi Jinping resulted in a one-year trade truce, reducing US tariffs on Chinese imports from 57% to 47%. China has agreed to resume US soybean purchases and allow rare earth exports to the US, easing trade tensions and boosting the US Dollar.

The Federal Reserve lowered its benchmark rate by 25 basis points to 3.75%-4.00%. Meanwhile, Chair Jerome Powell’s comments, interpreted as more hawkish, have lifted US Treasury yields. Powell suggested that another rate cut in December isn’t certain, which underpins the US Dollar further.

Reserve Bank of Australia and Inflation

Domestically, the Reserve Bank of Australia (RBA) is unlikely to ease policy further, as Australian inflation rose by 1.3% quarter-on-quarter, surpassing forecasts, reducing expectations of a rate cut. Markets now expect the RBA to maintain its current policy, considering ongoing inflationary pressures.

Upcoming data, such as Australia’s third-quarter Producer Price Index and China’s Purchasing Managers Indexes, may impact the Australian Dollar. The heatmap indicates the Australian Dollar’s strongest performance today was against the Japanese Yen.

We can see how a US-China trade truce and a hawkish Federal Reserve previously pushed the AUD/USD down to 0.6550, overpowering even strong Australian inflation data. This reminds us that the US Dollar’s direction, driven by major global events and Fed policy, often dictates the pair’s movement. These factors can easily outweigh domestic news from Australia.

Current Economic Dynamics

Looking at today, October 30, 2025, the dynamic is similar but the reasons have changed. The latest US core PCE inflation data released last week came in at a stubborn 3.7%, prompting Fed officials to signal that rates will remain high well into 2026. This contrasts sharply with the policy easing we saw years ago and continues to fuel US Dollar strength.

Meanwhile, Australia’s economic picture is softer now than it was then. The Q3 2025 inflation report showed a quarterly CPI increase of only 0.8%, which has markets pricing in a 65% chance of an RBA rate cut in the first half of next year. This policy divergence between a hawkish Fed and a potentially dovish RBA is a significant headwind for the Australian Dollar.

Furthermore, global trade sentiment is fragile, adding pressure on commodity-linked currencies like the Aussie. Iron ore prices, a critical Australian export, have slipped 12% over the past month to $105 per tonne amid fresh concerns over Chinese real estate demand. This is a far cry from the optimism generated by the past trade truce that boosted soybean and other commodity purchases.

For derivative traders, this environment suggests building a bearish bias on the AUD/USD pair in the coming weeks. Buying put options on the Australian Dollar could provide downside exposure while limiting risk if sentiment unexpectedly reverses. With implied volatility on AUD options ticking up, it indicates the market is preparing for a potential move below the 0.6400 support level.

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