Major FX pairs stayed mostly stable as regional stock markets saw slight drops. Japan’s Nikkei 225 decreased by 0.2%. Meanwhile, Hong Kong’s Hang Seng and the Shanghai Composite both fell by 0.1%.

New Zealand Trade and Deficit

New Zealand’s trade data for June showed a monthly surplus of NZ$142 million, but it was the first quarterly drop in exports in nearly two years. The country’s annual trade deficit hit NZ$4.37 billion. The Reserve Bank of Australia’s minutes from July’s meeting revealed a careful outlook, which contrasts with strong expectations in the market for a rate cut that didn’t happen. China’s PBOC set the yuan reference rate at its strongest level since November 8, exceeding expectations by 175 pips, indicating support for the currency. In geopolitical news, Donald Trump expressed that he would take further action against Iran if necessary, addressing concerns over nuclear activities.

Buying Opportunities in Low Volatility

With the low volatility in forex markets, we see a chance to buy options. The Deutsche Bank Currency Volatility Index is close to its two-year lows, making strategies like straddles or strangles on major pairs very affordable. This approach allows us to prepare for a significant price move without needing to predict a specific direction. The Australian central bank’s minutes indicate a distinct trade setup, as their views diverge from market expectations. Interest rate markets are currently pricing a more than 70% chance of a rate cut by November. We believe the bank’s cautious stance is only temporary. Positioning for AUD weakness through put options or by selling AUD/JPY seems wise. New Zealand’s first quarterly drop in exports, as noted in the trade data, suggests weak economic fundamentals. Coupled with the significant annual deficit, this points to challenges for the NZD in holding up against the US dollar. We anticipate the NZD/USD pair will face caps, providing chances to sell during any strength. The strong yuan fixing is a deliberate move for stability from China’s central bank, but we are wary. Historically, such strong support has sometimes been followed by a managed depreciation to enhance competitiveness. Traders should stay alert, as a policy shift could lead to a sharp rise in USD/CNH. Trump’s remarks about Iran bring back geopolitical risks, which typically benefit safer assets. We’ve seen the Japanese Yen rise by over 1% against the Australian dollar during recent periods of tension in the Middle East. Therefore, we should think about increasing our yen exposure against riskier commodity currencies. Create your live VT Markets account and start trading now.

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