The United States and China have agreed to extend their tariff truce for 90 days, avoiding higher duties on each other’s goods. President Trump signed an order to delay increased tariffs until November 10. Meanwhile, China’s Commerce Ministry postponed adding more US firms to its restriction lists. Asian markets reacted positively to this news, with Japan’s Nikkei and Topix setting record highs. In Australia, business confidence surged to a three-year high, reaching +7, thanks to gains in services and construction. However, retail prices rose by 1.1%.

China’s New Loan Policies

China will reveal new subsidized loan policies on August 13 to boost household spending and support the service sector. In the US, a new nominee has been selected to head the Bureau of Labor Statistics. The Asian foreign exchange market remained steady ahead of expected US inflation data. The US dollar dipped slightly after gains on Monday. In Asian stock markets, Australia’s S&P/ASX 200 rose by 0.14%, Hong Kong’s Hang Seng increased by 0.12%, Japan’s Nikkei 225 climbed by 2.45%, and the Shanghai Composite gained 0.48%. The Reserve Bank of Australia is predicted to lower its cash rate by 25 basis points today. The extension of the tariff truce between the US and China eases significant uncertainty until November. We can expect lower implied volatility in the coming weeks. Selling options on indices like the S&P 500 could be a good strategy, as the CBOE VIX Index fell from 18 to 14 following this news. All eyes are on the US inflation data set to be released later today. Economists expect the annual rate to dip slightly to 3.0% from last month’s 3.1%. Any unexpected results will influence the Federal Reserve’s next steps. We anticipate a strong market reaction, as this data is crucial before the Jackson Hole symposium later this month.

China’s Stimulus Effects on Commodities

China’s announcement about subsidized loans tomorrow should positively impact risk assets. This stimulus is expected to boost demand for commodities, benefiting the Australian dollar. Iron ore prices have already risen over 8% in the past month, now exceeding $115 per tonne, and this policy should further support that trend. The Reserve Bank of Australia is likely to cut its cash rate today, which usually weakens a currency. However, this 25-basis-point cut has been anticipated by the market for weeks. Positive developments from China, Australia’s largest trading partner, are expected to have a bigger impact on the AUD in the short term. In this environment of differing central bank policies, similar to what we saw drive markets in 2023, clear opportunities arise in currency pairs. A long position in AUD/JPY looks promising, betting on Australian commodity strength against Japan’s stagnant economy. This strategy takes advantage of both the news from China and the expected actions of central banks. Create your live VT Markets account and start trading now.

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