The Australian Dollar (AUD) strengthened sharply on Monday, with the AUD/USD pair rising 0.65% to approach 0.6560 during late European trading hours. The Aussie gained traction as improving sentiment around a potential US-China trade deal boosted demand for risk-sensitive currencies, including the Australian Dollar.
Optimism over easing trade tensions grew after comments from US Treasury Secretary Scott Bessent, who indicated that Washington would not move forward with the recently proposed 100% tariffs on Chinese goods.
He also noted that China would defer its planned export controls on rare earth minerals. These remarks followed Bessent’s meeting with Chinese Premier He Lifeng on the sidelines of the ASEAN summit in Malaysia over the weekend.
Trade optimism supports the Australian Dollar
As China remains Australia’s largest trading partner, the prospect of de-escalating trade frictions between Washington and Beijing offers a supportive backdrop for the Aussie. Improved market risk appetite also encouraged flows into high-beta currencies, helping AUD/USD extend its recovery from last week’s lows.
Investors eye Australia’s inflation data for policy clues
On the domestic front, investors are awaiting the release of Australia’s Q3 Consumer Price Index (CPI) on Wednesday, which is expected to play a key role in shaping the Reserve Bank of Australia’s (RBA) policy outlook.
Recent remarks from RBA Governor Michelle Bullock signaled the central bank’s commitment to “bringing inflation down and keeping employment conditions strong.” Bullock also expressed optimism that the jobless rate, which unexpectedly rose to 4.5% in September, could decline again in the coming months.
Fed rate-cut bets weigh on the US Dollar
Meanwhile, the US Dollar (USD) remains under mild selling pressure as market participants increasingly expect the Federal Reserve (Fed) to deliver a 25-basis-point rate cut at Wednesday’s policy meeting. Softer inflation data from the September CPI report reinforced this view, showing that both headline and core inflation rose at a modest monthly pace of 0.3% and 0.2%, respectively.
With traders positioning for potential Fed easing and optimism surrounding the US-China trade outlook strengthening, the AUD/USD pair appears well-supported in the near term.
