The USD has strengthened, recovering from losses after the Jackson Hole event, especially against the EURUSD. The overall decline in the dollar’s value has mostly bounced back. Australia’s Consumer Price Index (CPI) for July rose to 2.8% year-on-year, with a monthly increase of 0.9%. Goods inflation was 2.3% annually, while the trimmed mean core measure jumped to 2.7%. This briefly pushed the AUDUSD to 0.6503 before it dropped back to session lows. The upcoming August data will provide more details on services inflation, which is important for the Reserve Bank of Australia’s meeting in September.

US Mortgage Market Update

In the U.S., mortgage applications from the Mortgage Bankers Association (MBA) fell by 0.5% for the week ending August 22. The market index dropped to 275.8, and refinancings decreased to 894.1. However, the purchase index rose to 163.8. The average 30-year fixed mortgage rate slightly increased to 6.69%. Today’s schedules in both the U.S. and Canada are light, with the focus on price actions and upcoming earnings. Nvidia’s earnings report could have a major impact due to its significance in AI and semiconductors. U.S. stock indices are expected to open slightly higher, with Dow futures up by 32 points, NASDAQ by 26 points, and S&P by 6.81 points. The yield curve has steepened, with the gap between 2-year and 30-year yields at 128 basis points, a level not seen since early January 2022. As the US dollar gains momentum, the Dollar Index (DXY) has risen above the 106.50 mark, its highest level in almost a year. This recovery from the Jackson Hole-driven selloff suggests a strong trend is re-emerging. Derivative traders might consider strategies that benefit from continued dollar strength, like buying call options on the USD or put options against the euro.

Developments in the US Yield Curve

The US yield curve is showing significant changes as it steepens, with the gap between 2-year and 30-year yields currently at 128 basis points, a level we haven’t seen since early 2022. This shift from the deep inversion seen in 2023 indicates that the bond market is anticipating stronger growth and inflation in the future. Traders should consider positions that benefit from rising long-term rates, such as buying puts on long-duration Treasury bond futures. Tonight’s report on Nvidia’s earnings is the biggest event for the market in the near term. Given the stock’s history of large price swings of over 10% in just one day after earnings calls, implied volatility on weekly options is quite high. A long straddle or strangle could be a good strategy to play the expected price movement without guessing the direction. Uncertainty around the Federal Reserve is increasing due to political news. Reports about a possible lawsuit against Governor Cook and a review of regional Fed banks create doubt about the future of monetary policy. In this climate, buying volatility looks appealing, so we’re keeping an eye on VIX futures for late 2025, as they are currently priced higher than the spot index, which is around 18. Despite a surprisingly high inflation report from Australia, the AUD’s struggle to maintain gains against the dollar is significant. This reinforces the idea that the strong US dollar is the leading theme globally. With another important inflation report from Australia due on September 24, just before the next RBA meeting, we expect more chances to position for AUD weakness against the dollar. Create your live VT Markets account and start trading now.

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