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China’s NDRC plans initiatives to boost economic growth, integrate AI, and regulate competition
The National Development and Reform Commission of China (NDRC) is working to stabilize growth and deepen the use of artificial intelligence in the economy. The NDRC plans to slowly introduce measures for economic and job support to maintain macroeconomic stability. They will also enhance economic monitoring to tackle challenges, both global and domestic.
Artificial intelligence is reaching an important stage for broader use in various sectors, with hopes to boost AI commercialization and its role in economic progress. The NDRC intends to manage market competition, ensuring practices that prevent excessive or harmful rivalry and reduce deflation pressures.
Trump is open to further trade talks with Canada despite recent tariff hikes.
Trump stated that the new tariffs are being implemented smoothly and is open to more trade talks, even with Canada. This remark came just hours after an executive order raised tariffs on Canadian goods from 25% to 35%, targeting products not covered by the USMCA.
Despite the tax increase affecting US-Canada relations, Trump remains willing to negotiate, potentially including discussions with Canadian Prime Minister Mark Carney. This comes as the White House seeks “fairer” trade terms, although there are worries about disruptions to supply chains and economic ties in North America.
Current Market Situation
At present, the USD/CAD exchange rate is relatively steady at 1.3858. The current impasse creates a situation of policy-driven volatility. The market’s calm response, with USD/CAD remaining around 1.3858, indicates that traders are balancing the new tariff hike against the chance of diplomatic talks. Because of this uncertainty, we can expect the implied volatility on USD/CAD options to increase in the upcoming weeks. In light of this, using strategies like straddles or strangles to buy volatility could be wise. These strategies allow traders to benefit from significant price changes in either direction, which could result from successful talks with Prime Minister Justin Trudeau or further disputes. A major price move is more likely than a period of stability.Historical Context and Current Trends
Historically, we saw a similar situation during the 2018-2019 trade disputes when the US imposed tariffs on Canadian steel and aluminum. During that time, the USD/CAD rose from about 1.29 to over 1.36 over several months amid ongoing uncertainty. History indicates that as long as the tariffs remain, the path forward for the currency pair is likely upward. Recent data supports this viewpoint, as Statistics Canada reported a 0.8% drop in manufacturing exports for June 2025, showing initial signs of economic strain before this latest tariff increase. This makes Canada’s economy especially vulnerable to new trade barriers. Traders who expect a directional move might consider buying USD/CAD call options to gain from potential Canadian dollar weakness while managing downside risk if negotiations are successful. Any news regarding a possible call between the leaders will be a significant market driver. A positive outcome could quickly lower USD/CAD, reversing recent gains. On the other hand, if talks break down, the exchange rate may rise sharply toward the 1.40 level. Create your live VT Markets account and start trading now.China pauses corporate investment approvals in the U.S. amid rising trade tensions
Impact on Market Volatility and Investment Sectors
Since China stopped approving U.S. investments in April 2025, we expect a sharp increase in market volatility. Derivative traders should monitor the CBOE Volatility Index (VIX), which rose over 20 during similar trade tensions in 2019. This indicates that option prices will likely go up, making volatility-based strategies like long straddles more appealing. We’re focusing on sectors such as technology, electric vehicles, and manufacturing, which will feel the immediate effects of this investment freeze. Chinese foreign direct investment in the U.S. has already dropped from over $45 billion in 2016 to just $4.7 billion by the end of 2023. This new policy will further restrict capital flow. We see a chance to buy put options on specific sector ETFs like the Invesco QQQ Trust (QQQ) or the Industrial Select Sector SPDR Fund (XLI).Currency Market Dynamics
The currency market is likely to experience significant activity, especially with the offshore yuan (CNH). During the peak of the trade war in August 2019, the USD/CNH exchange rate crossed the important level of 7.0 due to similar pressures. Now, we’re on the lookout for a potential retest of those highs, which could create opportunities in currency futures and options for those betting on a weaker yuan. Create your live VT Markets account and start trading now.China’s manufacturing sector contracted in July, with a PMI of 49.5 due to weak demand and rising costs.
China’s manufacturing sector shrank in July, with the S&P Global Manufacturing PMI falling to 49.5, down from 50.4 in June. This number, below the 50 mark, suggests a decline in industrial output and raises concerns about China’s economic growth as it heads into the third quarter.
The survey showed that new export orders dropped for the fourth month in a row. These orders fell faster than in June due to weaker demand. Manufacturing output also decreased after a small rise in June. Companies relied on their existing inventories to meet orders, leading to a second straight decline in finished goods stocks.
Manufacturing Concerns
With production slowing and backlogs stable, manufacturers cut jobs in July due to weak demand and rising costs. Although business confidence slightly improved, it still lags behind the long-term average. Companies remain hopeful that better economic conditions and marketing efforts will boost future sales. Input prices went up for the first time in five months, partially due to Beijing’s efforts to limit damaging price wars. However, selling prices continued to drop as companies fiercely competed for orders. Export prices increased at the fastest pace in a year, driven by rising shipping and logistics costs. Analysts are worried about the fading impact of exports ahead of U.S. tariffs. They’re also watching for possible factory capacity cuts and measures to tackle deflation risks and disordered competition. With the manufacturing PMI at 49.5, there’s renewed concern about the industrial sector. This aligns with the below-expectation 4.8% GDP growth recorded in the second quarter of 2025. Traders should be cautious about assets tied to Chinese industrial demand in the upcoming weeks. The significant decline in new export orders is especially concerning for industrial commodities. Iron ore futures have already dropped to about $105 per tonne, the lowest in three months. It may be wise to place bearish bets on materials like copper and steel, as domestic demand appears weak.Market Reactions
This economic data is putting downward pressure on the yuan, with the USD/CNH exchange rate nearing 7.30. Given the weak PMI reading, it seems logical to bet on further yuan weakness using options or futures. A similar trend occurred in mid-2024 when bad economic data caused the currency to slide. For stock markets, the drop in output and job cuts among manufacturers indicates potential trouble for corporate earnings. This suggests that buying put options on indices like the Hang Seng or the FTSE China A50 could be a good strategy for protection or speculation. Firms facing pressure to lower their selling prices while their own costs rise will feel the pinch on profit margins. The slight rise in business confidence introduces uncertainty, which could lead to more market volatility. We can remember the inconsistent recovery patterns of 2023 and 2024, where data fluctuated between brief optimism and renewed weakness. This climate may favor strategies that benefit from large price fluctuations, such as long straddles on major Chinese ETFs. The temporary boost from early exports ahead of new U.S. tariffs set for September 1, 2025, is likely to fade. Consequently, data for August and September may be even worse as this artificial support disappears. We should expect ongoing negative pressure on Chinese manufacturing indicators through the end of the third quarter. Create your live VT Markets account and start trading now.In Australia, Q2 PPI rises by 0.7% quarterly and 3.4% annually, indicating slowed growth
Australia’s Producer Price Index (PPI) for the second quarter has risen by 0.7% compared to the previous quarter. This is a drop from a 0.9% rise in the first quarter. It’s the slowest growth we’ve seen since mid-2023.
Year over year, the PPI went up by 3.4%. This is the lowest rate since Q3 2021, down from a prior increase of 3.7%. Currently, the exchange rate between the Australian dollar and the US dollar is around 0.6434.
Recent Developments
In recent news, Trump announced a tariff that places Australia in a good position with a 10% tariff rate. Today, changes in the AUD/USD market have been minimal. We are expecting new data from China soon, particularly the second manufacturing PMI for Asia, which will be released on Friday, August 1, 2025. The producer price data released today indicates that inflation in Australia is cooling faster than expected. This is the slowest rate of price growth from producers since mid-2023. This trend could lead the Reserve Bank of Australia to reconsider its strict monetary policy. Due to this disinflationary trend, we are considering buying put options on the AUD/USD. This strategy could help us profit if the Australian dollar declines. With the RBA’s cash rate steady at 3.85%, the chances of a rate cut before the year ends have increased.China’s Manufacturing PMI and Market Volatility
The next significant event is the release of China’s manufacturing PMI data later today. Recent numbers have not been encouraging, with July’s Caixin Manufacturing PMI showing a troubling 49.8, indicating contraction. Another weak report will likely have a negative impact on the Aussie dollar since China is our largest export market. We also need to consider the current US tariff situation, where Australia has secured a relatively low 10% rate. While this helps protect us against competitors, it does not change the underlying dynamics driven by interest rate differences. We saw similar trends during the 2018-2019 trade disputes when the AUD still weakened despite having some trade benefits. Implied volatility for AUD options is rising ahead of this data release. This indicates that the market expects significant price fluctuations soon. Taking positions in the coming days could be beneficial before the volatility becomes more costly. Create your live VT Markets account and start trading now.Kato raises concerns about currency fluctuations caused by speculators and advocates for stability and fundamentals
Japan’s Finance Minister Kato is worried about changes in foreign exchange rates, which he blames on speculators. He stresses the need for a stable currency that reflects economic realities but does not comment on specific forex levels.
Kato’s remarks come after a significant drop in the yen’s value, with the USD/JPY exchange rate around 150.74. His comments aim to support the yen during these fluctuations.
Potential Impact of U.S. Tariffs
Kato also talked about how U.S. tariffs could affect exports, saying it requires careful observation. He notes a general agreement that the U.S. trade deficit is not sustainable. Japan is dedicated to meeting its commitments under the trade deal with the United States and plans to implement the agreed terms steadily. We are witnessing typical verbal intervention, showing officials are uneasy about the yen’s weakness as the USD/JPY hovers around 150.74. This is a critical level, recalling that authorities intervened heavily in October 2022 when the pair first crossed 150. Kato’s comments hint that the risk of actual intervention to strengthen the yen has increased significantly.Interest Rate Differences
The yen is under pressure due to the large difference in interest rates between Japan and the United States. The U.S. Federal Reserve rate is near 4.75%, while Japan’s rate is only 0.15%. This gap encourages traders to favor the carry trade, making it attractive to bet against the yen. Kato’s worries about speculators are justified, as data from late July 2025 shows that speculative short positions on the yen are near multi-year highs. This extreme positioning could lead to a swift market reversal, or “short squeeze,” if intervention occurs. It’s becoming a crowded trade with increasing risks from official actions. In this context, betting on further yen weakness has become riskier. It may be wise to use options to protect these positions. For instance, purchasing inexpensive out-of-the-money JPY calls can guard against a sudden drop in the USD/JPY rate. Looking back at interventions in 2022 and early 2024, when the pair exceeded 160, these moves can happen quickly and dramatically. The conflict between a strong upward trend and intervention fears is creating anxiety in the market. One-month implied volatility for the currency pair has already risen to over 11% this past week, indicating uncertainty. A strategy that buys this volatility, like a long straddle, could be beneficial in the coming weeks to take advantage of a significant price change. Create your live VT Markets account and start trading now.The PBOC sets the USD/CNY midpoint at 7.1496, below the forecast of 7.2033, injecting 126 billion yuan.
The People’s Bank of China (PBOC) manages the daily midpoint for the yuan, also called the renminbi or RMB. It uses a managed floating exchange rate system, allowing the yuan to vary within a range of +/- 2% around a central rate.
Recently, the midpoint was set at 7.1998. The central bank added 126 billion yuan through 7-day reverse repos at an interest rate of 1.40%.
Liquidity Management
Today, 789.3 billion yuan is set to mature, which means there will be a net liquidity drain of 663.3 billion yuan. This is part of the PBOC’s strategy to manage liquidity in the financial system. This large liquidity drain of 663.3 billion yuan is a strong signal. It tightens financial conditions and likely aims to strengthen the yuan. The exchange rate is just below 7.20 against the dollar, indicating a desire to hold that level. We’ve seen this strategy in action, especially during the summer months of 2023 and 2024, when the yuan faced similar pressures. During that time, the PBOC used daily fixes and open market operations to mitigate the currency’s decline against a strong US dollar. This history shows they’re drawing a line again.Economic Indicators
This tightening occurs alongside mixed economic data for July 2025. The latest official manufacturing PMI dropped to 49.9, suggesting slight contraction, while the non-manufacturing PMI rose to 51.0, signaling growth. This uneven recovery complicates the PBOC’s task of supporting the currency without hindering fragile growth. For derivative traders, this situation creates rising implied volatility. The tension between the PBOC’s tightening measures and disappointing economic indicators may lead to greater price fluctuations. Strategies like buying option straddles on USD/CNY can be beneficial, as they profit from significant moves in either direction. In the short term, the liquidity drain should help stabilize the yuan. We might consider selling near-term call options on USD/CNY with strike prices around 7.22 or 7.25. This assumes that the central bank’s actions will effectively limit further currency weakness in the coming weeks. However, we should be cautious about the yuan’s long-term outlook. A liquidity drain does not address underlying economic issues, and the interest rate gap with the US remains a significant challenge. If export or credit data is disappointing, the downward trend for the currency could re-emerge. Create your live VT Markets account and start trading now.Japan’s economy minister emphasizes caution on rates and calls for the U.S. to lower auto tariffs.
Japan’s Economy Minister, Ryosei Akazawa, recognized that the Bank of Japan has decided to keep interest rates steady despite economic uncertainties both at home and abroad. Akazawa stressed the importance of cooperation between the Bank of Japan and the government to reach a stable 2% inflation target.
Regarding trade, Akazawa said Japan aims to encourage the United States to keep its promise to lower tariffs on cars and auto parts. He warned that high U.S. tariffs could harm Japan’s economy by decreasing exports and hurting global demand.
Economic Strategy
Since the government wants the Bank of Japan to be cautious, we can expect interest rates to remain stable for now. This supportive stance indicates that the policies which have weakened the yen will likely persist. This is a clear message to currency traders. Therefore, we should explore options that benefit from a weaker yen, like purchasing USD/JPY call options. The currency pair has already surpassed the 165 level in mid-2025. With Japan’s core inflation for July at just 2.1%, there is no immediate pressure for sharp rate increases. We remember the interventions in 2024 when the yen dropped below 160, but the significant interest rate difference with the U.S. is still the main factor. The uncertainty around U.S. auto tariffs poses risks to Japanese stocks, particularly the export-focused Nikkei 225. We should consider protective put options on the index or on specific automakers. A resurgence of trade tensions could quickly lower stock prices, similar to the market reactions during trade conflicts in the late 2010s.Market Volatility And Monitoring
The mix of uncertain monetary policy and trade risks signals potential market volatility. Buying options that benefit from large price changes, such as straddles on the USD/JPY, might be a wise strategy. Current implied volatility is moderate, making these positions relatively affordable before possible market catalysts. We should also keep a close eye on the Japanese Government Bond (JGB) market. Even though the official stance is cautious, the 10-year JGB yield is nearly 1.1%, a level not seen in decades. This shows the market is testing the central bank’s commitment. Any unexpected changes in the Bank of Japan’s position could cause sudden shifts in bond prices. Create your live VT Markets account and start trading now.Japan’s manufacturing activity declines in July, with final PMI falling to 48.9 and highlighting continued weakness
Japan’s factory activity declined in July, with the S&P Global Manufacturing PMI falling to 48.9 from 50.1 in June. This shift indicates a return to decline after a brief stabilization. The final PMI figure closely matched the preliminary estimate of 48.8.
The decrease was due to weaker demand both domestically and internationally, leading to a sharp drop in output—the fastest decline since March. New orders continued to decline, but not as sharply as before. Employment rose, but at a slower pace, reaching a three-month low. While input cost inflation decreased to a 4.5-year low, output prices increased at the fastest rate in a year as companies passed costs onto consumers.
Boost In Business Confidence
Business confidence rose to a six-month high, fueled by hopes for increased demand and reduced trade tensions following a new trade deal with the U.S., which lowered tariffs from a threatened 25% to 15%. The Bank of Japan kept its short-term policy rate at 0.5%, which was expected. Governor Kazuo Ueda raised the bank’s inflation forecast to 2.7%, citing rising food prices and the positive impacts of the trade deal with the U.S. The yen briefly strengthened before settling around 150.67, slightly down from earlier highs. The data from July shows that Japan’s economy is sending mixed signals. The manufacturing sector is shrinking again, indicating weakness, while the Bank of Japan is raising its inflation forecast, suggesting a more hawkish approach. This tension between a weak economy and a concerned central bank creates uncertainty, making it difficult for the yen to find a clear direction around the 150.70 mark against the dollar. This situation means that betting on a clear movement in the yen could be risky in the coming weeks. A better option for traders might be using options, as the conflicting data is likely to cause volatility. Indeed, one-month implied volatility on USD/JPY has risen to 9.5% this week, indicating that the market is preparing for choppy price action rather than a steady trend.Implications For The Market
We have seen similar patterns in 2023 and 2024, where speculation about a possible Bank of Japan policy shift clashed with weakening economic data. These periods resulted in sharp, unpredictable swings in the yen that often reversed quickly. The takeaway from that experience is to be cautious with sustained moves and be ready for volatility instead. For those trading the Nikkei 225, the situation is also complex. A weaker yen generally benefits Japan’s large exporters, but the decline in factory output and soft domestic demand could negatively impact corporate earnings. This suggests considering pair trades, like favoring exporters over companies focused on the domestic market, rather than making a broad bet on the entire index. The bond market and any future comments from Governor Ueda will be key to watch. The 10-year Japanese government bond yield briefly surged to 0.78% yesterday, its highest since early 2024, indicating that traders take the inflation threat seriously. Any further indications that the Bank of Japan will act on its 2.7% inflation forecast could lead to a significant strengthening of the yen, potentially overshadowing the weak manufacturing data. Create your live VT Markets account and start trading now.PBOC expected to set the USD/CNY reference rate at 7.2033
The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi (RMB). The currency is allowed to fluctuate within a specific range, or “band,” of about +/- 2% from this midpoint.
Each morning, the PBOC determines the midpoint by considering a basket of currencies, primarily focusing on the US dollar. This process looks at market supply and demand, economic data, and changes in global currencies.
