The Japanese yen weakened as the USD/JPY exchange rate rose above 147.80, while other major currencies remained stable. At the same time, the Chinese yuan hit its highest value against the dollar since November. Japan’s chief trade negotiator is heading to Washington for discussions on Japanese investment in the U.S. Unexpectedly, Australia’s consumer price index for July rose to 2.8% year-on-year, nearing the Reserve Bank of Australia’s target of 2–3%. This marked the fastest growth in a year and reduced hopes for a rate cut soon. In contrast, China’s industrial profits dropped by 1.7% from January to July compared to the previous year, with a 1.5% decrease in July alone.

Minor Movement in Asia-Pacific Stocks

Stocks in the Asia-Pacific region saw little movement. Australia’s S&P/ASX 200 rose by 0.15%, Hong Kong’s Hang Seng was up by 0.1%, and the Shanghai Composite increased by 0.2%. Japan’s Nikkei 225 climbed by 0.3%. Weak domestic demand and competition have hurt profits in China, despite ongoing deflationary pressures and Beijing’s efforts to control competition. With the yen weakening past 147.80 against the dollar, buying USD/JPY call options may be a good move to take advantage of further upward trends. This is supported by the ongoing interest rate gap between the U.S. Federal Reserve, which recently held rates around 4.5%, and the Bank of Japan’s rate near 0.25%. This situation is similar to the carry trade trends seen in 2023 and 2024. Australia’s July CPI rise to 2.8% year-on-year—the highest in a year—likely means the Reserve Bank of Australia will hold rates steady. This makes selling AUD/USD put options or setting up bullish call spreads appealing, as the central bank is less likely to cut rates soon. This difference in policy could give the Australian dollar an advantage over currencies where central banks are considering cuts.

Yuan Strength and Economic Weakness

The yuan, reaching a nine-month high, stands in stark contrast to China’s declining industrial profits, which have now fallen for three consecutive months. This indicates potential policy support for the yuan, yet concerns about economic weakness remain for currencies tied to commodities. Since China is the largest buyer of Australian exports, weak demand may limit gains in the AUD, posing challenges for bullish positions. A better strategy for the upcoming weeks could be to buy AUD/JPY call options. This trade leverages the relative strength of the Australian dollar, backed by a hawkish Reserve Bank of Australia, against the weakening Japanese yen. It avoids the uncertainty of the U.S. dollar and the direct impact of China’s poor industrial data on the AUD/USD pair. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now