US Dollar Stability
Meanwhile, the US Dollar remained stable after the US Senate approved a stopgap bill to fund the government until January. At this time, the US Dollar Index (DXY), which measures the Greenback against six major currencies, held steady around 99.60.
In the US, Democratic lawmakers supported the bill alongside Republicans, agreeing to consider extending subsidies under the Affordable Care Act in December. The document also explains how the Federal Reserve’s policies impact the US Dollar, emphasising that changes in interest rates and actions such as quantitative easing (QE) or tightening (QT) can affect its value.
The Reserve Bank of Australia is signaling a restrictive policy for the foreseeable future, pushing the AUD/USD towards 0.6530. With Deputy Governor Hauser seeing no room for near-term rate cuts, we believe the path of least resistance for the Aussie is upward. Traders should consider positions that benefit from continued Australian dollar strength in the coming weeks.
This hawkish view is reinforced by high domestic inflation, which we saw accelerate to 1.3% in the third quarter. Last week’s October jobs report confirmed this economic heat, with unemployment unexpectedly dropping to 3.4%. These data points give the RBA little reason to change its restrictive course.
AUD Strategies
In contrast, the US Dollar remains subdued now that the government funding issue is resolved until January. The latest US Core PCE data showed inflation moderating to 2.8%, suggesting the Federal Reserve can afford to be more patient than the RBA. This growing policy divergence between the two central banks is the key theme for us right now.
Given this outlook, we are looking at strategies like buying AUD/USD call options to capture further upside while managing risk. This reminds us of the 2021-2022 cycle, where currencies backed by aggressive central banks consistently outperformed. Long positions in AUD futures could also be considered for a more direct exposure to this trend.
The primary risk to this view is a surprise uptick in upcoming US inflation data, which could rapidly shift Fed expectations. We will be closely watching the next US CPI release for any signs of reaccelerating price pressures. For now, holding above the 0.6500 level is critical for maintaining bullish momentum.
