The Westpac-Melbourne Institute Leading Index for Australia shows the economy is losing momentum. In June, the six-month annualized growth rate dropped to 0.03%, down from 0.11% in May. This index predicts the likely pace of economic activity over the next three to nine months. The slowdown is mainly due to falling commodity prices, weaker sentiment, and fewer hours worked. Analysts warn of possible instability in the short term, especially if support from financial markets, interest rate expectations, and US growth decreases.

Currency Market Stability

In the currency markets, AUD/USD is holding steady. Given the latest Leading Index data, we suggest that derivative traders take a more cautious approach. The index’s growth rate is nearly zero, indicating that the economy’s momentum is stalling. This suggests we should brace for a period of low growth or a possible downturn instead of seeking more gains. Falling commodity prices are a major concern. Recent data shows iron ore prices have dropped below $105 per tonne, a significant decline from earlier highs this year. As Australia’s top export, this drop puts pressure on both the economy and the currency. We should consider strategies that benefit from a weaker materials sector.

Domestic Economy and Consumer Sentiment

At home, the report highlights a decrease in hours worked, supported by new statistics showing the unemployment rate has risen to 4.1% as the labor market cools. Consumer sentiment is also low, remaining below 85 points for over a year. These issues suggest trouble for consumer-focused companies, making them less attractive for bullish investments. While AUD/USD is stable now, we see this as a brief calm before potential turbulence. Historically, the Australian dollar tends to drop sharply during global growth concerns, like the commodity price crash in 2015-2016. The current fragility hints at similar risks if the US economy weakens. Thus, we should focus on protecting ourselves against potential declines in Australian markets. We believe buying put options on the ASX 200 index can help hedge against a broader stock market downturn. Additionally, purchasing put options on the AUD/USD offers a direct and cost-effective way to prepare for potential currency weakness indicated by recent economic data. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now