RBA Governor Highlights Inflation Concerns
RBA Governor Michele Bullock indicated that inflation remains a concern and could affect future monetary policy. Traders adjusted expectations, reducing bets on an RBA rate cut next week, favouring a rate hike next year. In contrast, there is a nearly 90% chance that the US Federal Reserve will lower borrowing costs next week.
Speculation on a dovish successor to Fed Chair Jerome Powell has kept the US Dollar at a one-month low. This weakness in USD, alongside a bullish equity market environment, benefits the risk-sensitive AUD. The Australian Bureau of Statistics highlighted the trade balance as a key indicator of net export performance, which is vital for understanding economic health.
We are seeing the AUD/USD pair sustain its move above the 0.6600 level, and the underlying reasons for this strength appear solid. The main driver is the growing policy divergence between a hawkish Reserve Bank of Australia and a dovish US Federal Reserve. This fundamental split is likely to dictate trading in the coming weeks.
To support this view, Australia’s most recent inflation data from the third quarter of 2025 showed a sticky 3.8% year-on-year rate, which is well outside the RBA’s target band. In contrast, the latest US Non-Farm Payrolls report for November 2025 came in softer than expected at 155,000 jobs, reinforcing bets on a Fed rate cut. This widening gap in economic performance and central bank outlook is creating a clear path for Aussie strength.
For traders, this suggests that long positions in the AUD/USD have merit. Buying call options could be an effective strategy to gain upside exposure, particularly with the US Fed’s interest rate decision coming next week. This approach allows participation in a potential rally while defining risk to the premium paid.
Currency Trends and Trading Strategies
We’ve also seen implied volatility for AUD/USD options climb to a three-month high, reflecting the market’s anticipation of central bank action. This elevated premium environment makes selling cash-secured puts an attractive option for those willing to buy the pair on a dip. This strategy is particularly relevant if we believe the 0.6600 mark will now serve as a strong support level.
Looking back, we saw similar periods of central bank divergence, like in 2023, create powerful and lasting currency trends. The current setup is beginning to echo that period, but with the roles for the Fed and RBA reversed. This historical precedent suggests the current move might be the start of a more significant, multi-month realignment rather than a short-term spike.
Therefore, a bullish call spread could also be a prudent, cost-effective strategy. By buying a call at a lower strike price and selling one at a higher strike, traders can target a measured move up towards the 0.6700 or 0.6800 levels. This limits the upfront cost while still profiting from the expected upward trend.
