In October, China’s Manufacturing Purchasing Managers’ Index (PMI) reported a figure of 50.6, missing the expected 50.9. This has led to slower performance for related currencies. The NZD/USD is currently around 0.5700 due to the weak Chinese data. The Australian dollar gained some support as the market expects the Reserve Bank of Australia (RBA) to keep interest rates steady. On the other hand, the USD/CAD remains above 1.4000, reflecting caution over the US Federal Reserve’s policy.

The Japanese Yen’s Weakness

The Japanese yen continues to weaken against the strong US dollar amid uncertainty about the Bank of Japan. Additionally, WTI crude oil prices have risen above $61.00 after OPEC+ hinted at a potential halt in production increases. In other news, US President Donald Trump plans to block NVIDIA’s AI chip sales to China. The EUR/USD is staying below 1.1550 as expectations of a Fed rate cut diminish. Similarly, the GBP/USD is near its lowest point since April, dipping below the mid-1.3100s. The disappointing Chinese manufacturing PMI of 50.6 suggests a risk of global slowdown, though it still indicates growth. This is prompting concerns for commodities linked to Chinese demand, as copper prices have already dropped over 3% this month to about $7,800 per tonne. Traders might consider buying put options on industrial metals or commodity-linked currencies to prepare for more weakness. The weak Chinese data is putting pressure on the New Zealand dollar, while the support for the Australian dollar may only be temporary if this trend continues. We are cautious about both currencies, especially since signs of a global slowdown often strengthen the US dollar as a safe haven. Exploring options strategies like bear put spreads on the AUD/USD could provide protection in the weeks ahead.

Increasing Geopolitical Risk

Geopolitical risks are rising as the US is set to block AI chip sales to China, increasing market uncertainty. Such tensions usually lead to more volatility, and we’ve seen the VIX index rise from just under 14 to over 18 in recent weeks. We recommend buying VIX call options as a direct way to protect portfolios against possible market turbulence. Meanwhile, the US dollar remains strong as expectations for a Federal Reserve rate cut decline. This trend is especially evident against the Japanese yen, given the significant interest rate difference, with the Fed Funds Rate at 4.75% compared to the Bank of Japan’s near-zero rate. There are opportunities in using long call options on the USD/JPY pair to take advantage of this ongoing momentum. In the energy sector, OPEC+’s decision to pause output increases is helping keep oil prices steady, with WTI crude above $61 a barrel. This supply discipline indicates a solid price floor as we approach winter in the Northern Hemisphere, which typically sees higher demand. We suggest buying call options on crude futures or energy sector ETFs to take advantage of this supportive market environment. Create your live VT Markets account and start trading now.

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