China Enforces Stricter Regulations

Starting this Friday, we’ll see how new Chinese rules on cash transactions for precious metals impact the market. This policy targets specific buyers in the world’s largest gold-buying country. The important question is how much of China’s physical gold demand depends on these large, now-reportable cash transactions. It’s important to consider that consumer demand in China reached 210 tonnes in the second quarter of 2025. This adds more uncertainty to the situation, especially since the People’s Bank of China halted its gold purchases in May and June after a long buying trend. This new rule could be another challenge for gold demand. The most straightforward interpretation is that these regulations will reduce physical demand from cash-heavy buyers. With illegal or grey-market purchases becoming harder, we might see a short-term decline in spot gold prices. This could present opportunities for traders looking to take short positions on gold futures in the coming weeks. However, we don’t know the true size of this cash-based market, which creates uncertainty and can lead to price swings. This uncertainty makes options strategies that profit from price movements, regardless of direction, especially appealing. Keeping an eye on implied volatility in gold ETFs will be crucial to understanding market anxiety. In the past, we noticed similar market reactions when India imposed stricter gold import and transaction rules in the mid-2010s, which caused initial price fluctuations. Those incidents showed that disrupting a major source of gold demand, even briefly, can open up short-term trading opportunities. History indicates that such regulatory changes often have a significant immediate effect on market sentiment. Traders should also watch the price difference between the Shanghai Gold Exchange and the London Bullion Market. A large drop in Chinese demand could shrink the typical premium on Shanghai gold or even turn it into a discount. This shift could create arbitrage opportunities for those able to trade across different exchanges. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

In June 2025, Australia’s private sector credit rose by 0.6% compared to the previous month, beating the expected 0.5% increase. In May, credit had also increased by 0.5%. Over the year, private sector credit grew by 6.8%, which is a slight decrease from the previous 6.9%. Business credit dipped a bit month-over-month, while housing and personal credit both went up.

Reserve Bank Of Australia Data

The Reserve Bank of Australia released this data. They also noted that recent CPI data was well-received. As of today, July 31, 2025, the better-than-expected private sector credit data shows the economy is still strong. The 0.6% monthly increase, fueled by housing and personal loans, indicates strong consumer demand. This typically suggests that the Reserve Bank of Australia (RBA) might keep a hawkish stance. However, we need to consider the RBA’s recent comments. Deputy Governor Hauser called the latest CPI data “very welcome,” which signals a dovish approach. This means the central bank is more focused on easing inflation rather than the positive credit numbers. This situation is reminiscent of late 2023, when the RBA kept its cash rate at 4.35% while monitoring falling inflation. Recent data showed that the CPI for Q2 2025 eased to 3.4%, suggesting that the bank’s strict policies are working. Therefore, traders should view this credit data as less important for the RBA’s immediate decisions.

Market Implications

For interest rate derivatives, the chances of a rate hike in August are very low. We believe traders should prepare for an extended pause, with expectations for RBA rate cuts likely moving to early 2026. This is supported by rising prices in ASX 30 Day Interbank Cash Rate Futures for December 2025 and March 2026 contracts. This likely limits the strength of the Australian dollar. With the RBA appearing less aggressive than the US Federal Reserve, the interest rate edge for the AUD is diminishing. Options traders might look for strategies that hedge against or take advantage of potential AUD weakness against the USD in the coming weeks. Given the mixed signals from strong credit growth and dovish central bank talk, we expect implied volatility to stay high. This market environment isn’t about making clear predictions but rather managing fluctuations in prices. Traders may want to consider strategies that thrive in range-bound markets until the RBA offers clearer guidance. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Australia’s retail sales in June 2025 rose by 1.2% from the previous month, exceeding the expected 0.4% and the prior month’s 0.2%. This growth suggests a significant boost in consumer activity. Quarterly numbers show a growth of 0.3%, up from 0.1% last quarter. This trend signals a positive outlook for consumer spending in the months ahead.

Strong Australian Consumer

The June retail sales increase of +1.2% clearly shows that Australian consumers are more resilient than anticipated. This figure exceeds the +0.4% consensus and indicates that inflation pressures are likely not easing as quickly as the Reserve Bank of Australia (RBA) wished. As a result, this strong data lowers the chances of interest rate cuts in the near future. This report adds to the growing evidence we’ve recently observed. Last week’s Q2 2025 Consumer Price Index (CPI) report showed inflation stubbornly high at 3.8%, well above the RBA’s target. The official cash rate has stayed at 4.35% since the last hike in late 2023, and this consumer strength may prompt the central bank to maintain a hawkish stance. We can expect the Australian dollar to strengthen in the coming weeks. Higher interest rate forecasts make the currency more appealing to foreign investors, similar to patterns seen during past inflationary periods in 2023 and 2024. To take advantage of potential gains, consider using AUD/USD call options.

Effects on the Bond Market and RBA Meeting

The bond market will likely adjust based on this news. Higher rate expectations typically lead to lower bond prices, which may encourage short positions in Australian government bond futures, especially the sensitive 3-year contract. The yield on these 3-year bonds has already risen to 4.10% in early trading, reflecting changing sentiment. All eyes will be on the upcoming RBA meeting on August 5th. The market anticipates a higher likelihood of a hawkish statement, and we can expect increased implied volatility in interest rate options. This data shifts the narrative for that meeting from a neutral hold to a more active discussion. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Australia’s building permits in June 2025 jumped by 11.9% from the previous month, far exceeding the expected 2.0%. This is the highest increase since August 2022 and shows a year-on-year growth of 27.4%, mainly due to multi-unit projects like apartments. In retail, Australia saw sales rise by 1.2% in June 2025, beating the forecast of 0.4%. This surge coincides with positive consumer price index readings, according to the Reserve Bank of Australia’s Deputy Governor.

Global Military Conflicts

On the international front, the article discusses military conflicts, including Iran’s missile attack on the Al Udeid Base and a successful U.S. strike on Iranian nuclear sites. It also mentions how the recent Japanese upper-house election affects the USDJPY technical analysis. Other news includes a warning about the high risks of foreign exchange trading, highlighting the potential for significant losses. There is also advice to be cautious when interpreting opinions and past performances for investment choices. The site featuring these articles disclaims any liability for reliance on this information, stating that trading involves risks. They clarify that they do not endorse the views shared on their platform; the content is purely for informational purposes.

Market Reactions and Safe Haven Flows

Following breaking news from July 31, 2025, we are experiencing a classic risk-off climate due to serious geopolitical tensions. The Iran-U.S. conflict has shifted traders’ focus to preserving capital and seeking safety. Expect a movement toward traditional safe-haven assets. The VIX, a measure of market fear, has risen over 40% in the last 24 hours, now trading above 28. This level hasn’t been seen since the regional banking concerns in early 2023, indicating that traders should brace for significant fluctuations in equity markets. Buying put options on major indices like the S&P 500 may be wise to guard against a downturn. Oil prices will benefit directly from the tensions in the Middle East. Brent crude futures soared past $110 a barrel overnight due to the Iran news, a sharp increase from the average of about $85 in the second quarter of 2025. Taking long positions in oil futures or energy-sector ETFs appears to be a good short-term strategy. Gold has exceeded the crucial $2,400 per ounce mark, driven by the demand for safety and uncertainty regarding the Federal Reserve. The combination of military conflict and political pressure on the Fed supports a strong trend for precious metals. This trend is evident in the significant inflows to gold ETFs, which experienced their largest single-day increase of the year. The positive economic data from Australia, while impressive, may be overshadowed by the global risk-off mood. Although June’s retail sales and building permits suggest that the RBA should maintain a hawkish stance, the gains of the AUD may be limited. It could perform well against currencies with more dovish central banks but is likely to face challenges against safe havens like the Japanese Yen and Swiss Franc. The situation with the U.S. Dollar is complicated, as it straddles both its status as a safe haven and the political turmoil surrounding the Fed. Uncertainty regarding Powell and Trump’s demands has lowered the 2-year Treasury yield by 20 basis points, creating tricky conditions for USD pairs. Expect high volatility in pairs like USD/JPY as safe-haven flows meet domestic uncertainties. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

Australia’s Q2 2025 trade data shows a drop in export and import prices. The Import Price Index fell by 0.8% compared to the previous quarter. Analysts had predicted a 0.5% decrease, while last quarter saw a 3.3% decline. The Export Price Index dropped by 4.5%, worse than the expected 3% decrease and contrasting with a 2.1% increase last quarter. This disappointing trade performance contrasts with better-than-expected retail sales for June 2025, which climbed 1.2% month-on-month, exceeding the 0.4% forecast.

Impact Of Terms Of Trade

Terms of trade reflect the price relationship between a country’s exports and imports and are vital for economic health. When export prices rise faster than import prices, it benefits purchasing power and stimulates growth. However, if import prices increase more than export prices, it can harm purchasing power and economic growth. A decline in terms of trade can be troubling. It suggests that exports are losing value relative to imports, which can negatively impact overall economic performance. As of July 31, 2025, Australia’s economic situation shows a stark contrast. The significant 4.5% decrease in export prices highlights a worsening trade balance, driven by falling commodity prices. For instance, recent data shows a drop of over 15% in iron ore prices during the second quarter, which is a key export.

Economic Outlook For Traders

This weakness in trade stands in stark contrast to the surprising strength of Australian consumers. The rise in retail sales in June reveals a robust domestic economy, creating a confusing dynamic where poor trade income contrasts with strong consumer spending. The Reserve Bank of Australia’s recent views add complexity to this situation. With the Q2 CPI data coming in lower than expected at 3.8%, Deputy Governor Hauser’s comments suggest the central bank may not need to raise rates from the current level of 4.35%. This inflation figure allows them to focus on the declining trade scenario. For currency traders, this mixed outlook indicates that the Australian dollar may face challenges. The negative terms of trade, reminiscent of the 2013-2014 commodity downturn, are likely to weigh down the currency more than strong retail sales will support it. Traders might consider strategies that bet on a lower or more volatile AUD/USD exchange rate. In the interest rate market, this scenario suggests that expectations for further RBA rate hikes may be overly optimistic. The positive inflation data, paired with poor trade figures, makes a hawkish policy less likely. Traders might explore buying three-year bond futures to capitalize on the market potentially reassessing future rate hikes. For equity derivatives, the data hints at a potential pair trade on the ASX 200 index. We expect mining and resource stocks to struggle because of the drop in export prices. In contrast, consumer discretionary and retail stocks may continue to perform well, making a strategy of shorting the materials sector while going long on retail stocks a sensible approach. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The official manufacturing PMI for China in July 2025 is 49.3, which is below the expected 49.7. This indicates a contraction for the fourth month in a row, driven by lower export growth and weak domestic demand. The non-manufacturing PMI comes in at 50.1, showing slight growth but at its lowest level since last November, missing the anticipated 50.3. The composite PMI is reported at 50.2, down from 50.7 earlier.

Ongoing Structural Issues

Trade talks between China and the US are still facing structural problems. In the days ahead, we expect new insights from the unofficial Caixin/S&P manufacturing and non-manufacturing PMIs, which provide a different view than the official numbers. The consistent decline in manufacturing is a serious warning for China’s economy. Both exports and domestic demand are weak, which may lead to a risk-off sentiment in the coming weeks. This disappointing data suggests that previous stimulus measures are not working effectively. We should anticipate a downturn for industrial commodities, especially those tied to Chinese construction and manufacturing. For example, iron ore is currently around $107 per metric ton, putting pressure on prices. Traders might look to short copper and oil futures or consider puts on major mining stocks.

Currency Markets Impact

The Australian dollar, a key indicator of Chinese economic health, could struggle. The AUD/USD pair has had difficulty staying above the 0.6600 level recently, and this news might drive it lower. We also expect the Chinese Yuan to weaken, as traders test the People’s Bank of China’s willingness to let the USD/CNH go beyond the 7.30 level. For equity markets, Chinese-listed stocks and funds like the FXI ETF are likely to underperform. Investors are becoming impatient due to ongoing property sector issues and low consumer confidence in 2023 and 2024. With the VIX volatility index remaining low, buying call options on it might be a cost-effective way to protect against a wider market decline prompted by these issues. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

US Commerce Secretary Lutnick announced trade deals with Cambodia and Thailand during an interview on Fox News. The agreements were completed before the August 1 deadline. Previously, former President Trump secured a deal with South Korea.

Focus On Southeast Asian Trade Partnerships

This shows a commitment to building trade partnerships with Southeast Asian countries. This strategy supports ongoing efforts to strengthen global economic ties. With the August 1 deadline approaching, we should prepare for increased market volatility. The CBOE Volatility Index (VIX), known as the market’s “fear gauge,” has risen over 15% this past week, trading above 20, indicating growing anxiety. It’s wise to prepare for sharp, unpredictable price changes with options strategies, such as straddles on broad market ETFs. We notice a clear difference between sectors that benefit from protectionism and those that suffer. For example, in July 2025, the Industrial Select Sector SPDR Fund (XLI) has outperformed the retail-focused SPDR S&P Retail ETF (XRT) as investors expect higher import costs for consumer goods. This means buying call options on domestic manufacturers while considering put options on major retailers that depend on imports could be a smart move.

Opportunities In Emerging Markets

These last-minute deals present opportunities in foreign exchange and emerging markets. The Thai Baht has risen 2% against currencies like those of Vietnam and Malaysia in the past 48 hours. This trend may continue as capital flows to nations with secured U.S. market access. This situation reminds us of market reactions during the 2018-2019 trade negotiations. Back then, companies with complex international supply chains saw their stock prices drop, while those focused on domestic business thrived. We should apply that lesson today by closely examining company earnings reports for geographic revenue exposure. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The People’s Bank of China (PBOC) has set the yuan’s daily midpoint at 7.1494 against the US dollar, compared to earlier estimates of 7.2062. This midpoint is part of a managed floating exchange rate system, meaning the yuan can vary within a +/- 2% range around this central rate. The previous closing rate was 7.2000. Additionally, the PBOC performed a transaction involving 283.2 billion yuan through 7-day reverse repos, with an interest rate of 1.40%. With 331 billion yuan maturing today, this indicates a net drain of 47.8 billion yuan.

China And US Trade Discussions

Chinese state media has reported that trade talks with the United States continue to face structural issues. More updates are expected soon, along with China’s Purchasing Managers’ Index (PMI) figures. The PBOC is sending a strong signal by setting the yuan at a firmer rate than expected. This challenges the market’s view that the currency will weaken. For traders in derivatives, this shift presents a significant short-term opportunity against current economic trends. Despite this maneuver, the overall economic picture remains weak. Recently, China’s Q2 GDP growth for 2025 was reported at 4.8%, just below the government’s 5.0% target. This follows a trend of softer data seen through the spring. Additionally, export figures for June 2025 showed a 3% decline compared to the previous year, reflecting the effects of ongoing trade tensions. However, the PBOC has reasons for wanting a stable or stronger yuan, likely to reduce capital outflows and control inflation. There have been net foreign inflows into Chinese government bonds for two consecutive months, totaling over $15 billion in Q2 2025, suggesting that this policy is working. Furthermore, China’s June Consumer Price Index slightly exceeded expectations at 2.1%, giving the bank another reason to prevent currency weakness from raising import prices.

Yuan Strength Strategy

The tension between policy and economic fundamentals is causing implied volatility in USD/CNY options to rise, recently reaching a three-month high. Traders should think about buying volatility through strategies like straddles or strangles. These approaches profit from significant price changes in either direction, which seems likely given the current situation. In the coming weeks, it might be wise to follow the PBOC’s policy by using short-dated options to bet on continued yuan strength below the 7.20 level. However, over a few months, weaker economic data suggests that this strength may not last. Longer-dated call options on USD/CNY could serve as a good hedge against the currency eventually facing pressures from fundamentals. We must also remember the PBOC’s history of sudden policy changes, such as the unexpected devaluation in August 2015. This aggressive fixing serves as a reminder that the central bank can resist market trends for an extended period. History indicates that going against the PBOC in the short term poses risks, even if the long-term outlook appears clear. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The United States will now apply a 15% tariff on imports from South Korea. This change helps avoid a possible increase to 25%, which was set to start on August 1. President Trump announced a complete trade agreement with South Korea.

South Korea’s Investment and Energy Purchases

South Korea will invest $350 billion in projects in the U.S., which President Trump will choose. The agreement also requires South Korea to buy $100 billion in U.S. energy products, including liquefied natural gas. With this deal, U.S. exports like vehicles and agricultural products can enter South Korea without tariffs. A meeting is planned, as South Korean President Lee Jae Myung will visit the White House to talk with President Trump in about two weeks. With the 25% tariff threat gone, we can expect a drop in volatility for assets related to this news. During the trade disputes in 2018-2019, the VIX index rose above 25 with tariff announcements. This time, we are avoiding that pattern. Traders might want to consider selling volatility on South Korean ETFs like EWY and the broader S&P 500.

Effects on South Korean and U.S. Markets

The 15% tariff is an added cost for South Korea, although it’s better than the previous alternative. We should be careful about a long-term rally for South Korean exporters, especially car manufacturers like Hyundai and Kia, which sent nearly 1.5 million vehicles to the U.S. in 2024. Strategies that limit potential gains, like selling call spreads on these companies, may be useful. The U.S. energy sector stands to gain from this agreement. South Korea’s promise to buy $100 billion in U.S. energy products is a big boost, especially since total U.S. LNG exports for 2024 were worth about $95 billion. We can expect positive movement in derivatives for major LNG exporters and energy ETFs like XLE soon. The $350 billion investment pledge into U.S. projects holds great long-term potential but creates short-term uncertainty. Since the projects will be directly chosen by the President, it’s unclear who the beneficiaries will be, making specific stock bets hard. Traders should keep an eye on industrial and materials sector ETFs for unusual options activity as more information comes out in the following months. Duty-free access to South Korea will help U.S. agricultural and auto exports. Last year, U.S. agricultural exports to South Korea were over $9 billion, and the removal of tariffs should increase demand for products like beef, corn, and soybeans. Consider call options on agricultural commodity ETFs to take advantage of this opportunity. In currency markets, the deal suggests a stronger U.S. dollar compared to the South Korean won. The combined $450 billion commitment for U.S. investments and energy will create high demand for dollars from South Korean entities. We can predict that the USD/KRW exchange rate, currently near 1,350, will rise, making long dollar positions against the won appealing. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now

The People’s Bank of China (PBOC) sets the daily midpoint for the yuan, also known as the renminbi (RMB), against several currencies, especially the US dollar. This reference rate is announced around 0115 GMT each day. The PBOC manages a floating exchange rate system, allowing the yuan to move within a range or “band” of +/- 2% from this midpoint. The PBOC considers factors like market supply and demand, economic indicators, and international currency movements. The bank may adjust the trading band based on economic conditions and its goals. If the yuan approaches the limits of this band or becomes too volatile, the PBOC may step in and buy or sell yuan to stabilize the market.

Controlled Adjustment of the Yuan’s Value

The trading band allows for a controlled adjustment of the yuan’s value, limiting its daily change to a maximum of 2% from the midpoint. This keeps the foreign exchange market stable while still enabling necessary changes based on current economic conditions. Currently, the expected USD/CNY reference rate is around 7.2062, indicating that the PBOC is maintaining its policy of managed depreciation. This suggests that while authorities are okay with a weaker yuan, they won’t let it drop uncontrollably. Traders can expect the PBOC to intervene to smooth out any sharp fluctuations. From 2023 to 2024, we observed this trend during a persistent property sector crisis and low consumer demand. In that time, the PBOC consistently set the daily fix stronger than market expectations to guard against quick capital flight. This history shows the PBOC values stability, making it unlikely for the +/- 2% trading band to be tested too harshly.

Emphasis on Stability

The focus on stability has kept actual currency volatility low, despite rising economic pressures. Implied volatility on USD/CNY options has been steadily decreasing over the past year. This environment favors strategies that benefit from low volatility, such as selling out-of-the-money puts and calls. A weaker yuan has also been essential for supporting China’s manufacturing sector. For example, in May 2024, China’s exports rose by 7.6% year-over-year, surpassing expectations. Given this success with a managed float, policymakers are likely to continue this approach in the coming weeks. Considering this, derivative traders should prepare for a slow, controlled increase in the USD/CNY pair rather than a sudden jump. Strategies like buying call spreads on USD/CNY could be effective as they benefit from limited upward movements while capping potential losses. Aggressive bets on a sudden depreciation are unlikely to succeed due to the high chance of central bank intervention. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now