On October 29, the financial markets were stable as attention turned to the policy decisions from the Bank of Canada (BoC) and the Federal Reserve (Fed). The US Dollar steadied, performing best against the British Pound. Many expected the Fed to cut the policy rate by 25 basis points. Anticipation built around comments from Fed Chair Jerome Powell for more insights on the decision. US President Donald Trump mentioned the possibility of a trade deal with China and a finalized agreement with South Korea. The USD/CAD fell below 1.3950, losing over 0.3%. The BoC was also expected to lower interest rates by 25 basis points to 2.25%. Meanwhile, gold prices recovered after hitting a low due to rising geopolitical tensions between Israel and Hamas.

Monetary Policy and Currency Impacts

The USD/JPY stayed above 152.00, with Japan’s Chief Cabinet Secretary expecting the BoJ to maintain its careful monetary policy. Australia’s Consumer Price Index rose 3.2% in the third quarter, surpassing the expected 3% and boosting AUD/USD to its highest in three weeks. In contrast, EUR/USD dropped below 1.1650, and GBP/USD fell to its lowest since August. The Federal Reserve mainly influences the US Dollar through interest rate changes, holding eight policy meetings each year. Quantitative Easing and Tightening have opposing effects on the value of the US Dollar. The market largely anticipates the Fed’s 25 basis point rate cut, so we are closely monitoring Chairman Powell’s remarks for real trading signals. Any indication of a pause or further cuts could cause significant movements in the US Dollar. This situation is similar to the market turmoil in early 2024 when Fed expectations shifted quickly. This presents an opportunity to use options strategies that can profit from sharp price swings, like a long straddle on currency ETFs. The CBOE Volatility Index (VIX) has been around 17, indicating that the market might be underestimating the chance of a surprise following the meeting. Therefore, purchasing volatility through options could be a smart move in the coming days.

Opportunities in the Currency Markets

Australia’s unexpected 3.2% inflation figure makes AUD/USD particularly appealing for bullish strategies. We believe the Reserve Bank of Australia may need to take a more aggressive stance compared to the Fed. Buying AUD/USD call options that expire in the coming weeks could leverage this difference in monetary policy. With the Bank of Canada also expected to cut rates, the movement of USD/CAD will hinge on which central bank seems more committed to easing. Recent data shows Canadian unemployment steady at 5.7%, which may lead the BoC to indicate a “one and done” approach. This could strengthen the Canadian dollar, making put options on USD/CAD an attractive trade. Geopolitical tensions are once again providing support for gold, which is staying near the $4,000 mark. This level is vital, especially if the Fed moves to weaken the dollar. Buying call spreads on gold futures could be a cost-effective way to gain upside exposure if tensions escalate. The British Pound remains the weakest major currency against the dollar, trading at multi-month lows below 1.3250. This downtrend is likely to continue if the Fed does not deliver an overly cautious message. We can consider selling GBP/USD futures or buying put options to take advantage of this bearish trend. Create your live VT Markets account and start trading now.

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