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Prime Minister Luxon says US tariff relief for New Zealand exports is unlikely, impacting NZD/USD
**US Tariff Relief Looking Unlikely**
The New Zealand dollar is struggling due to unlikely US tariff relief. A 15% tariff is essentially a tax on a key part of our export economy, limiting the potential gains for the NZD/USD pair. Traders should be cautious about any rallies in the near future.
Recent economic data supports this view. According to Stats NZ, export volumes to the United States dropped by 0.8% in the second quarter of 2025 due to these trade barriers. Additionally, the Reserve Bank of New Zealand noted “global trade friction” as a major risk to its growth forecasts in a statement last week.
**US Dollar Stays Strong**
On the other side, the US dollar remains strong. In its July 2025 meeting, the US Federal Reserve indicated it plans to keep interest rates “higher for longer,” as core PCE inflation continues at 2.8%, above the target level. This difference in interest rates between the US and New Zealand will likely keep supporting the dollar.
We saw a similar situation from 2018 to 2019 when rising US-China trade tensions consistently put pressure on the Kiwi dollar, driving NZD/USD lower even when New Zealand’s economy looked solid. History shows that during trade protectionism, commodity currencies like the NZD often underperform.
Given this outlook, traders might consider strategies that benefit from limited upside or a decline in the NZD/USD. Buying put options on the New Zealand dollar can offer downside risk with limited exposure. Another approach is selling out-of-the-money call options to collect premiums by betting that the pair won’t surpass key resistance levels in the coming weeks.
The 0.6250 level, tested and rejected in late July 2025, is now an even stronger barrier for the currency pair. If the NZD/USD approaches this level, it could be a signal to initiate bearish positions. We expect the NZD/USD to remain within a range, with downward pressure as long as these tariffs stay in place.
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Bitcoin surpasses $121K and Ether hits highest level since late 2021, demonstrating resilience
BTC/USD has climbed over US$121,000, showing strong growth in the cryptocurrency market. Bitcoin is on an upward trend, fueled by increased interest that is pushing its value higher.
This momentum signals a positive shift in Bitcoin trading, with a noticeable rise in demand. The increase in Bitcoin’s value highlights growing market activity and possible opportunities in digital currencies.
Bitcoin has moved back above the key US$121,000 mark, which is a strong indicator for the market. This rise represents nearly a 15% increase since late July 2025. The entire cryptocurrency space is experiencing positive momentum, pointing to broad market strength.
For those trading futures, this trend suggests keeping or starting long positions. We are noticing that perpetual futures funding rates have consistently turned positive, now averaging around 0.02% across major exchanges. This shows traders are confident that prices will keep rising.
Options traders may find it appealing to buy call options to take advantage of further gains. The data shows that open interest for September 2025 US$130,000 and US$140,000 strike prices has jumped over 40% in just a week. While implied volatility is high, it hasn’t reached the extreme levels of the 2024 bull market, indicating there might still be room for growth.
A more cautious strategy is to sell out-of-the-money put options to earn premiums. With solid support near the US$115,000 level, selling puts below this price could be a smart way to generate income. This strategy benefits from rising prices and time decay, but traders should be aware of the risk of a sudden drop.
Looking back at the market after the 2024 halving can provide insights. After a period of consolidation lasting several months, we saw a surge in late 2024 that led to new all-time highs. This historical pattern suggests that the current movement may be the beginning of a stronger upward trend.
Ethereum’s price surge fueled by institutional interest, regulatory clarity, and DeFi advancements
Ethereum’s price is rising due to a mix of clear regulations, growing institutional interest, and technical improvements. Its role in stablecoins and decentralized finance (DeFi) is also boosting its value.
Almost half of all stablecoins are based on Ethereum’s technology, and new stablecoin regulations in the U.S. are increasing trust in Ethereum. Major companies, including banks and asset managers, are exploring Ethereum as part of their cryptocurrency strategies.
Since May 2024, nine spot Ethereum ETFs have launched, attracting both attention and investment. These ETFs let everyday investors buy Ethereum without needing to hold it directly.
Recent upgrades like Pectra and Dencun have enhanced Ethereum’s scalability, reduced transaction costs, and improved staking efficiency. These upgrades make Ethereum more appealing and useful.
Ethereum supports DeFi and staking, giving users a way to earn yields, making it attractive beyond just speculation. This variety of uses is leading more people to engage with the Ethereum ecosystem.
With Ether recently reaching its highest price since December 2021, the bullish trend looks strong. Spot Ether ETFs have attracted over $1.2 billion in net investments since their launch in May 2024. This ongoing institutional buying suggests we should prepare for more price increases in the coming weeks.
For those trading derivatives, now is a good time for long-call strategies or bull-call spreads to take advantage of expected price rises while managing risk. Recent options data shows a clear trend: September and December call options are trading at a much higher price than puts. This indicates the market expects prices to keep rising, so we should act quickly before that premium increases further.
We’re closely monitoring the upcoming Pectra upgrade, expected later this quarter. The earlier Dencun upgrade successfully lowered transaction fees, and Pectra is predicted to further enhance scalability and staking efficiency. These improvements increase the network’s value and attractiveness to users and large investors alike.
Additionally, Ethereum is becoming more dominant in the stablecoin space, vital for much of the DeFi market. As of August 2025, Ethereum supports over 52% of the entire stablecoin market cap, a significant rise from earlier this year. This strong liquidity and utility provide a solid foundation for ETH’s price.
Historically, a similar pattern happened during the 2021 cycle, where Ethereum’s price surged following Bitcoin’s initial moves. With established structures like ETFs for both assets, we could be at the start of a similar rally. Thus, any short-term dips should be seen as chances to buy.
The rising demand for yield through staking is also important and wasn’t as developed in past cycles. Big investors are not only buying ETH for potential price increases but also to earn returns, which limits the available supply on the open market. This supply squeeze could lead to significant upward price movements.
July US CPI is expected to rise by 0.1% as focus turns to inflation trends
Deutsche Bank is focused on tariff developments as the August 12 deadline for US-China tariffs approaches. This date is crucial for trade relations and could impact market sentiment significantly, depending on whether the tariffs are paused or lifted.
The bank is also watching the US Consumer Price Index (CPI) report for July, set to be released on Tuesday. Economists anticipate a +0.1% increase in the headline CPI from June, which experienced a +0.3% rise. They also expect a slowdown in the year-over-year inflation rate.
July CPI Expectations
Core CPI is predicted to rise by +0.21% month-on-month, matching June’s increase of +0.2%. Analysts will closely examine these numbers for hints about future inflation and the Federal Reserve’s possible policy adjustments. The US CPI report will be published on Tuesday at 12:30 GMT, or 08:30 US Eastern time. As we approach two key events tomorrow, August 12, 2025, traders should be prepared. The deadline for the US-China tariff pause and the release of July’s inflation data could lead to major market movements. Derivative traders should brace for possible spikes in volatility. We are monitoring the US CPI report for signs of slowing inflation. Expectations are for a modest 0.1% monthly increase, with core inflation forecasted at 0.21%. After core inflation hovered around 3.1% in the second quarter of 2025, a lower number could indicate that the Federal Reserve’s policies are having an effect.Potential Market Reactions
With these two significant events happening close together, traders may prepare for large price changes in either direction. The VIX, a key indicator of market fear, recently rose to 18.5, showing increased nervousness ahead of these developments. Strategies that benefit from volatility, like straddles on the SPX, are gaining popularity. The outcome of the tariff discussions remains uncertain and could overshadow the inflation data. We recall how market volatility surged during the 2018-2019 trade disputes, where unexpected tariff announcements led to sharp declines in equity futures. If the current pause is not extended, we may see a similar risk-averse reaction. As a result, traders might consider buying put options in trade-sensitive sectors like semiconductors or industrials as a way to hedge their positions. These options could provide protection if trade negotiations break down and new tariffs are introduced. On the other hand, a positive outcome could lead to a significant rally, making short-term call options appealing for those willing to take that risk. Create your live VT Markets account and start trading now.Whitmer tells Trump in private meeting that his tariffs hurt Michigan’s automotive sector
Michigan Governor Gretchen Whitmer met with President Donald Trump in the Oval Office on Tuesday. She conveyed a crucial message: his tariffs were harming the auto industry he promised to protect.
Tariff Effects on Michigan
During their third meeting since Trump took office, Whitmer warned that the tariffs could lead to serious economic problems in Michigan. This state played a key role in Trump’s 2024 election victory. She also asked for federal assistance after a recent ice storm and requested a delay in Medicaid changes that could impact healthcare coverage. Sources who attended the meeting, speaking anonymously, said that Trump did not make any firm commitments. While he listened, he showed no intent to change his trade policy. The president seems to be sticking to his trade decisions, despite warnings about the auto industry. This indicates that the pressure from tariffs on carmakers and their suppliers will likely continue. Derivative traders should be aware of this ongoing risk as fall approaches. We’ve observed the effects of these trade policies on the market. Recent figures reveal that U.S. auto sales in the second quarter of 2025 dropped almost 4% compared to last year. This decline is likely due to higher costs for materials like steel and aluminum, which have reduced profits for manufacturers.Investor Considerations
Given the president’s unwavering position, traders might want to consider buying put options on major automakers like Ford and General Motors. These options could help protect against potential drops in stock prices in the coming weeks. The absence of any commitment to change policy raises the risk for these companies. Remember, market volatility surged during the trade disputes in 2018 and 2019. The CBOE Volatility Index (VIX) spiked whenever new tariff announcements were made. This historical trend suggests that implied volatility on auto stocks could increase, making options pricier but also potentially more rewarding. This issue goes beyond tariffs; unresolved matters like federal aid for storm recovery and Medicaid changes add to the uncertainty. This broader policy uncertainty could shake investor confidence across various sectors. As a result, traders should also monitor ETFs in the broader industrial sector for signs of weakness. Create your live VT Markets account and start trading now.The PBOC sets the USD/CNY reference rate at 7.1405, which is lower than expected.
The People’s Bank of China (PBOC) set the yuan (CNY) reference rate at 7.1405 to the US dollar today, which is stronger than the expected rate of 7.1845. The PBOC uses a managed floating exchange rate system, allowing the yuan to fluctuate within 2% of this midpoint.
The previous closing rate was 7.1799. The PBOC also injected 112 billion yuan through 7-day reverse repos at a rate of 1.40%.
However, 544.8 billion yuan will mature today, leading to a net outflow of 432.8 billion yuan in the financial system.
Currency Stability Over Export Boost
The People’s Bank of China is clearly indicating that it won’t allow the yuan to weaken excessively. By setting a stronger reference rate, the bank is pushing back against depreciation pressures. This suggests that, in the coming weeks, the USD/CNY exchange rate is likely to be capped by policymakers. This approach comes even as economic data shows some slowdown. For instance, the July 2025 manufacturing PMI fell to 49.2, indicating contraction. This suggests the PBOC is prioritizing currency stability instead of letting the yuan weaken to support struggling exports. The ongoing net liquidity drain highlights the bank’s focus on maintaining financial order rather than stimulating the economy broadly. For derivative traders, this is a warning against betting heavily on a weaker yuan. Strategies based on long USD/CNY call options now come with significant policy risks, so it may be wise to reduce such positions. Selling out-of-the-money call spreads on USD/CNY could be a smart way to take advantage of the expectation that upside is now limited.Implications For Traders And Markets
Policy can be unpredictable, as we saw after the surprise devaluation in August 2015. However, today’s actions seem aimed at discouraging speculation and preventing a chaotic decline. This strong guidance will likely reduce short-term volatility in the currency pair. An artificially stronger yuan poses challenges for China’s export-driven companies, which could impact equity markets. This pressure may be seen in derivatives related to the Hang Seng China Enterprises Index (HSCEI). Traders might consider buying put options on these indices to hedge against potential earnings weakness in export-focused firms. On the flip side, a stronger currency boosts China’s purchasing power for important imports. This could temporarily benefit commodities like copper and crude oil, which have seen their prices decrease recently due to concerns about Chinese demand. Call options on these commodities may present a tactical opportunity if this policy remains in place. Create your live VT Markets account and start trading now.China’s lithium production cuts raise concerns about oversupply, impacting market sentiment and stocks.
China’s Contemporary Amperex Technology Co. Ltd. (CATL) has paused operations for at least three months at its Jianxiawo lithium mine in Jiangxi province. This halt followed the expiration of its mining permit on August 9 and has led to speculation about wider supply cuts as Beijing tackles overcapacity problems.
While analysts believe this change won’t significantly affect the market’s current oversupply, there might be a chance for temporary price fluctuations. If other Yichun mines face disruptions after September 30, prices could shift away from “reasonable levels”. Still, Citi analysts don’t expect any lasting supply shortages, even if the suspension briefly boosts market sentiment.
Surge In Australian Lithium Stocks
In Australia, lithium stocks have surged. The Australian benchmark index, the S&P/ASX 200, has reached a new high, exceeding 8852. The stop at CATL’s Jianxiawo mine is a short-lived issue in a market still facing long-term oversupply. This situation seems like a temporary lift in sentiment, not a major change. Traders should see the resulting price swings as a limited-time opportunity. Historically, lithium carbonate prices plummeted from near $80,000 per tonne in late 2022 to below $20,000 for most of 2024, due to an influx of new supply. Prices have steadied around $23,500 per tonne in mid-2025, showing that sentiment can quickly be swayed by market realities. The current production pause is minor compared to the significant global capacity growth over the past two years. In the coming weeks, we think call options on lithium producers and related ETFs are a good strategy. The important date is September 30 when other mining permits in China’s Yichun region are up for review. News of further halts could prolong the rally, making short-term call options expiring in October or November 2025 particularly appealing.Hedging Against Market Corrections
The rise in Australian stocks like Pilbara Minerals and Arcadium Lithium may be ahead of the actual situation. The S&P/ASX 200 index reaching a record high amid this material rally poses a potential risk. If supply concerns diminish after September, these gains could quickly reverse. Thus, a counter-strategy is necessary. As we enter the fourth quarter, the market will likely refocus on ongoing oversupply issues. We are considering buying put options that expire in early 2026 to prepare for a price correction once this short-term news cycle concludes. Create your live VT Markets account and start trading now.PBOC likely to set USD/CNY reference rate at 7.1845, according to Reuters estimates
The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi. This midpoint is based on various currencies, mainly the US dollar, and affects how the yuan is traded each day. The yuan uses a managed floating exchange rate system, allowing it to fluctuate within a set range of +/- 2%.
Setting The Daily Midpoint
Every morning, the PBOC looks at market supply and demand, economic indicators, and changes in the global currency market to decide on the yuan’s midpoint. This reference point guides trading for the day, enabling controlled adjustments to its value. The trading band allows for a maximum increase or decrease of 2% from the midpoint each day, although the PBOC can modify this range based on economic conditions. If the yuan’s value gets close to the band limit or becomes volatile, the PBOC might step in to stabilize it by trading yuan. These actions help ensure a steady and gradual adjustment of the currency. The system is designed to keep the currency stable while allowing for controlled changes in value. Currently, with a reference rate estimate of 7.1845, the yuan is under pressure to depreciate. This rate, though managed, reflects economic challenges and a strong US dollar. Traders should expect the PBOC to continue using the daily fix to slow, but not fully stop, this gradual weakening. Recent economic data supports this cautious approach. In July 2025, China’s industrial production grew only by 3.9%, which was below market expectations and indicates a slowing economy. This weakness puts pressure on the yuan, yet the PBOC has been consistently setting stronger fixes to keep it stable.Impact Of A Robust US Dollar
Meanwhile, the US dollar remains strong against most major currencies. Recent US inflation data shows that core prices are still stubbornly high, leading many to believe the Federal Reserve will keep interest rates steady into 2026. This difference in interest rates between the US and China will keep attracting capital to the dollar. For traders dealing in derivatives, this suggests that the yuan may weaken, but the PBOC will control the pace closely. Selling short-term volatility on the USD/CNY pair could be a wise strategy, as the PBOC’s 2% trading band is likely to limit any sudden daily changes. The central bank is focused on maintaining stability above all. Looking back to late 2023, when the yuan faced significant money outflows, we saw the PBOC actively manage the exchange rate for several months. This frustrated traders betting on a sharp decline, showing the bank’s readiness to counter market forces for extended periods. We will closely watch the difference between the onshore yuan (CNY) and the more freely traded offshore yuan (CNH). A widening gap could indicate that market pressure is building beyond what the central bank finds comfortable. This might signal a future policy change or an unexpected adjustment in the reference rate. Create your live VT Markets account and start trading now.China’s July data shows declining producer prices and stagnant consumer prices, highlighting ongoing economic challenges.
China’s factory-gate prices fell more than expected in July, while consumer prices stayed the same. This shows ongoing problems due to weak domestic demand and trade uncertainties. Consumer prices had no annual change, compared to a 0.1% rise in June, which was better than the anticipated slight decline.
The core consumer price index (CPI) rose 0.8% year-on-year, the highest increase in 17 months, mostly because of non-food items. In contrast, food prices dropped by 1.6%. Monthly CPI went up by 0.4%, which is better than the 0.1% dip in June. The producer price index (PPI) fell by 3.6% year-on-year, matching June’s near two-year low and surpassing expectations of a 3.3% decrease.
Consecutive PPI Contraction
This is the 25th month in a row that the PPI has contracted, mainly due to fierce price competition in important sectors. The monthly PPI fell by 0.2%, improving from June’s 0.4% drop. Authorities are taking steps to tackle competition issues in areas such as automobile manufacturing. Extreme weather, like heatwaves and heavy rainfall, has worsened economic troubles. Some people think deflationary issues may ease, but others fear recovery could stay weak without strong demand-side support. Issues like a housing slump, unstable trade relations with the US, and a weak job market are contributing to this concern. The latest July figures show that China’s economy is still facing weak demand. Consumer prices are flat, and factory prices are dropping faster than expected. This suggests that deflationary pressures are still a problem.Impact on Global Markets
The 25-month decline in producer prices is alarming for the industrial sector. It indicates continued price wars and excess supply in key industries like autos. This is a negative sign for companies involved in manufacturing and construction. We’ve seen this pattern before in late 2023 and early 2024, when China’s consumer price index fell for several months, marking the longest deflationary period since 2009. This suggests that the current weakness can persist without significant stimulus. In the coming weeks, we should be careful about investing in Chinese stocks, like those in the Hang Seng Index or FXI ETF. During the 2023 slump, the Hang Seng dropped below 15,000 points, a level not seen in over a year. Consider buying put options to protect against or profit from further declines. This weakness also affects global commodities that China relies on heavily. With factory activity slowing, we expect lower demand for industrial metals like copper and iron ore. This may create chances to short commodity futures or stocks of major mining companies. A slowing Chinese economy is bad news for its trading partners, especially Australia. In mid-2024, the Australian dollar fell significantly when dismal Chinese trade data was released. We should consider bearish positions in the AUD/USD pair as this trend is likely to continue. However, the rise in core inflation driven by services shows some strength in the consumer sector. Authorities are trying to curb “disorderly competition,” which could help stabilize prices. We need to monitor any developments from these government actions. With these mixed signals, betting on a clear direction is risky. A smarter approach may be to use derivatives to take advantage of increased volatility. Consider setting up straddles on key indices to benefit from significant price swings in either direction as this situation unfolds. Create your live VT Markets account and start trading now.The Reserve Bank of Australia is expected to lower its cash rate by 25 basis points.
The Reserve Bank of Australia (RBA) will meet on Monday, August 11, 2025, and Tuesday, August 12, 2025. The decision on the cash rate is expected at 2:30 PM local time on Tuesday. After last month’s unexpected choice to keep the cash rate steady, most expect a cut this time.
