Rabobank’s Michael Every says Australia’s macroeconomic backdrop has changed in a meaningful way. Minutes from the Reserve Bank of Australia (RBA) lay out the case for a 25 bps rate rise, noting that staff forecasts were “materially stronger than those produced in August and November”. The IMF warned Australia that its 5% deposit scheme for first-time home buyers will lift housing inflation. It said the scheme should be removed. The article also reports warnings that it may already be too late to pull back the measure.

Policy Tension In Australia

This mix of housing support and higher interest rates is said to make the economy, and the path of the Overnight Cash Rate, harder to forecast. The piece adds that the RBA has previously warned that housing measures like this can be inflationary. The article notes it was created with help from an artificial intelligence tool and reviewed by an editor. We are seeing a clear clash between the RBA’s recent rate hike and government policy. The central bank’s minutes from late 2025 confirm that forecasts are now “materially stronger,” which supports a more hawkish stance. But fiscal support alongside monetary tightening adds uncertainty for the Australian dollar and bond markets. This is not just a debate on policy. January data showed Q4 2025 inflation was still high at 4.5%, above expectations. At the same time, CoreLogic data showed property values in major cities like Sydney rose by more than 3% last quarter, which works against the RBA’s goals. The IMF’s warning that the 5% deposit scheme is pushing up prices seems to be showing up in the data.

Implications For Rates Volatility

For those of us in derivatives, this points to higher volatility in interest rate products in the weeks ahead. The RBA may be pushed into a more aggressive path than the market expected just a few months earlier in late 2025. In that setting, using options to hedge against, or express a view on, further surprise policy moves may be sensible. We should watch the ASX 30 Day Interbank Cash Rate Futures, which have repriced sharply since January. The market now reflects at least a 70% chance of another 25 bps hike by June. That is a big shift from last year, when traders expected rate cuts. Positioning for a higher-for-longer rate outlook through futures or swaps is the most direct response to this ongoing policy conflict. Create your live VT Markets account and start trading now.

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EUR/USD fell during North American trading. It first touched 1.1804, then traded near 1.1845, down 0.07%. Risk-off sentiment supported the US Dollar as US–Iran tensions stayed high. This was despite nuclear talks resuming on Tuesday and reports of progress. The US also sent a fleet to the Middle East. US data pointed to a firmer labour market. The ADP Employment Change 4-week average rose to 10.3K from an upwardly revised 7.8K.

Market Pricing For Fed Cuts

The New York Empire State Manufacturing Index slipped to 7.1 from 7.7, but beat the 6.0 forecast. Markets scaled back expectations for Federal Reserve rate cuts. Prime Market Terminal showed 57 basis points of easing priced in through end-2026. In the Eurozone, Germany’s ZEW Economic Sentiment dropped to 58.3 from a prior five-year high, missing the 65.0 estimate. Eurozone industrial production growth slowed to 1.2% YoY in December 2025 from 2.2%, and came in below the 1.3% forecast. On February 18, the Eurozone calendar includes ECB speeches by Mario Cipollone and Isabel Schnabel. In the US, the focus is on Durable Goods Orders, housing data, Industrial Production, and the FOMC minutes. The gap between the US and Eurozone economies appears to be widening, which supports a stronger Dollar versus the Euro. The January 2026 Nonfarm Payrolls report showed a blockbuster 350,000 job gain two weeks ago. This reinforced the view that the US economy remains resilient. With that strength, it is hard for the Federal Reserve to justify aggressive rate cuts anytime soon.

Eurozone Growth Drag

In contrast, the outlook for the Euro is weakening as core Eurozone data stays soft. German factory orders fell sharply at the end of 2025, and that trend is weighing on the region’s industrial engine. This weakness suggests the European Central Bank will be much less willing to tighten policy, creating a clear policy gap versus the Fed. Given this backdrop, we should consider buying EUR/USD put options to position for a potential move lower, with strikes below 1.1800. The release of the January FOMC minutes is a key catalyst. It could confirm a hawkish Fed and drive the next leg lower. This approach helps define risk while keeping exposure to a downside move. Renewed US–Iran tensions add another layer of uncertainty that tends to favour the safe-haven Dollar. Implied volatility on EUR/USD options may start to rise, so it may be better to act before hedges become more expensive. The VIX, a measure of market fear, is edging up from recent lows below 14, suggesting traders are becoming more cautious. Technically, the pair is consolidating, but the descending trend line near 1.1863 is strong resistance. A break below the recent low at 1.1804 could be used as a trigger to add to shorts or bearish option structures. Until that break happens, selling out-of-the-money call options above 1.1950 could be a sensible way to collect premium. Create your live VT Markets account and start trading now.

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New Zealand’s Producer Price Index (PPI) output rose 0.1% quarter-on-quarter in the fourth quarter. The result was below the 0.7% increase expected.

Producer Price Pressures Easing Rapidly

The much lower-than-expected producer price inflation figure suggests price pressures are easing faster than we expected. This also suggests the Reserve Bank of New Zealand’s aggressive rate hikes through 2025 may be working more strongly than previously thought. We now need to take a hard look at how the market is pricing the path of the official cash rate (OCR). This data challenges the view that the RBNZ must keep rates “higher for longer.” With wholesale inflation close to flat, the case for further tightening has faded. The focus is likely to shift quickly to when the first rate cut may happen. We should expect interest rate markets to start pricing a higher chance of an OCR cut before the end of the third quarter. We saw a similar pattern last year. Fourth-quarter 2025 CPI came in at 4.7%, already below the RBNZ’s own late-2025 forecasts. This PPI result adds to that disinflation trend, especially since New Zealand’s GDP growth in the second half of 2025 was a weak 0.3%. The slowdown is clearly helping cool prices earlier in the supply chain. As a result, we see a clearer path toward a weaker New Zealand dollar. If expectations for rate cuts move forward, the NZD’s yield advantage will shrink, especially versus the US dollar. We expect NZD/USD to face meaningful pressure in the coming weeks. A simple strategy is to buy NZD/USD put options expiring in April or May. This gives downside exposure while limiting risk if the market moves against us in the short term. We are watching for a break below the 0.6050 support level that held through much of January.

Positioning For Lower Short Term Rates

We should also consider positioning for lower short-term interest rates using 90-day bank bill futures. Contracts for the second half of the year may be mispriced because they do not fully reflect the risk of multiple rate cuts. Buying these futures is a direct way to express the view that the RBNZ may need to act sooner than the market expects. Create your live VT Markets account and start trading now.

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New Zealand’s Producer Price Index (PPI) input fell 0.5% quarter-on-quarter in the fourth quarter. This was below expectations for a 0.5% rise.

Implications For Rbnz Policy Outlook

New Zealand’s Q4 2025 producer price input fell 0.5%, instead of rising 0.5% as expected. This is a clear deflationary signal. It suggests cost pressures are easing faster than we anticipated. Because of this, we may need to rethink when the Reserve Bank of New Zealand (RBNZ) could start cutting rates. The release comes just ahead of the RBNZ policy meeting on February 26, 2026. It also follows the January 2026 CPI report, which showed annual inflation slowing to 3.8%. Together, weaker consumer and producer price data supports a more dovish RBNZ. We now think the market may be underpricing the chance that the RBNZ signals a shift toward easing later this year. For the New Zealand dollar, this is bearish. Lower rate expectations usually weaken a currency, so NZD/USD may come under pressure. We should consider buying NZD put options to hedge risk or to position for a move down toward the support levels seen in late 2025. In rates markets, this points to lower yields, especially at the short end of the curve. Products such as 90-day bank bill futures may see more buying. We should also look at interest rate swaps to receive fixed and pay floating, which would benefit if the RBNZ cuts the Official Cash Rate earlier than the market expects. Because the data missed expectations by a wide margin, implied volatility in NZD-related assets may rise. This can make options strategies like straddles more attractive for traders who expect a large move after the RBNZ meeting but are unsure of the direction.

Volatility And Options Strategy Setup

We saw a similar pattern in 2023, when surprise inflation data forced a fast repricing of RBNZ policy and drove a spike in currency volatility. Create your live VT Markets account and start trading now.

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TD Securities expects US GDP growth of 2.3% (q/q annualised) in Q4 2025, after two stronger quarters. It says growth is cooling because consumers are spending less, federal government spending is falling, and net exports are weaker. It expects AI-related spending to keep supporting non-residential fixed investment. The firm will revisit its 2.3% Q4 forecast after the December data on durable goods, inventories, and trade, ahead of Friday’s GDP report.

Key Macro Watchpoints

In the same week, it expects December PCE inflation to rise. It also sees growth drifting back toward its long-run potential by the end of 2025. TD Securities links this to a trade policy shock from the Trump administration and a less restrictive Fed in 2025 as the labor market cools. Looking ahead, it projects GDP growth of about 2.3% (Q4/Q4) in 2026, similar to 2025. It forecasts the unemployment rate at 4.2% by Q4 2026, with the labor market continuing to stabilize through the end of 2026. TD Securities puts the odds of a US recession in the next year at 25%. We are now seeing the expected slowdown. The advance estimate for Q4 2025 GDP growth came in at 2.1%, confirming a step down from last year’s stronger pace. A 25% recession risk is still on the table, and major trade policy changes add uncertainty. Even so, implied volatility looks low. We think it makes sense to buy options that benefit from bigger market moves, such as VIX calls or index straddles, in the weeks ahead.

Rates Volatility And Policy Risk

The Fed’s rate cuts in 2025 were a response to a softer labor market. But the January 2026 jobs report showed unemployment holding at 3.9%. Also, December 2025 PCE inflation ticked up to 3.1%, which is not what the Fed wants to see. This points to the Fed staying on hold. That makes derivatives that benefit if there are no further rate cuts in the first half of 2026 look more attractive. The outlook also points to a split market. AI investment may keep supporting technology stocks even as the broader economy slows. That gap showed up in the latest earnings season: semiconductor firms beat expectations, while many consumer-focused companies guided lower. We can trade this theme with options—for example, by selling call spreads on broad indexes while staying long targeted tech ETFs. Larger tax refunds in the first half of 2026 could give consumers a temporary boost. The stimulus periods in 2020 and 2021 showed that these boosts can be strong but short-lived. This could create a short-term opportunity in consumer discretionary stocks, but we should be ready for spending to fade back to a weaker trend by summer. Create your live VT Markets account and start trading now.

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Japan’s political shift is moving the Japanese yen. Prime Minister Sanae Takaichi won by a wide margin. This gives her party room to pursue bigger fiscal plans. On 8 February, the Liberal Democratic Party (LDP) won 316 of 465 seats. This is the party’s highest total in the post-war era, going back to 1955.

Two Thirds Majority And Budget Control

With a two-thirds majority, the LDP can control key House of Representatives committees, including the Budget Committee. This reduces the need to negotiate with other parties to pass budget measures. Takaichi has said she will suspend VAT on food for two years. Estimates put the cost at about JPY 5 trillion per year, or roughly 0.8% of Japan’s GDP. Markets are concerned that larger deficits could weaken Japan’s public finances. One assessment puts net debt at just under 70% of GDP, based on Japan’s broader asset position. With the LDP’s new two-thirds majority, these fiscal pledges now look highly likely. This removes political uncertainty and shifts market attention to the economic impact. The proposed JPY 5 trillion yearly VAT cut is a meaningful stimulus and will likely push the yen lower in the near term. This nervousness is already showing up in derivatives markets, with implied volatility in USD/JPY rising since the 8 February election.

Near Term Trading Implications For Yen

In the coming weeks, traders may want to position for a weaker yen. Fiscal expansion is likely to outweigh any potential tightening from the Bank of Japan. One defined-risk approach is to buy short-dated USD/JPY call options. This benefits from both a possible rise in USD/JPY and the currently higher volatility. This view is supported by late-2025 core inflation data, which showed inflation holding near 2.5%—a level this stimulus could push even higher. A similar pattern played out in the early Abenomics period in the 2010s, when fiscal stimulus helped drive a sharp yen depreciation. The market is now pricing in a test—and possibly a break—of the 160 level in USD/JPY seen last year. A sustained move above 160 could trigger a faster decline in the yen. However, the market’s fiscal fears may be overstated. While gross government debt is high (over 260% of GDP), net debt is far lower—below 70%—because Japan holds substantial government assets. This suggests recent yen weakness may be more of a short-term reaction than a long-term structural shift. That creates room for contrarian or longer-horizon trades. If the initial drop in the yen fades without a true fiscal crisis, volatility may fall. In that case, selling out-of-the-money USD/JPY calls or JPY/USD puts could be a way to collect premium, based on the view that the currency will stabilize once markets digest the net-debt picture. Create your live VT Markets account and start trading now.

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US data showed the four-week average ADP Employment Change rose to 10.3K private-sector jobs, up from 7.8K. Canada’s January CPI slowed to 2.3% year-on-year, below the 2.4% forecast and the previous reading. The US Dollar Index traded near 97.20 after hitting a one-week high of 97.54. EUR/USD held around 1.1850 after Germany’s January HICP came in as expected at 2.1%. However, February ZEW sentiment fell in both Germany and the Eurozone.

Major Fx Moves And Key Drivers

GBP/USD traded near 1.3560 and dipped after UK claimant count, employment change, and the December ILO unemployment rate signaled weaker labour market conditions. AUD/USD hovered near 0.7080 after bouncing from a five-day low following the RBA minutes. USD/CAD traded near 1.3640 after giving up earlier gains ahead of Canada’s softer CPI result. USD/JPY traded around 153.20 and was still lower on the day. Traders stayed focused on Japan’s pro-stimulus plans and the Bank of Japan’s hawkish tone. Gold traded near $4,877 and stayed below $5,000. Key upcoming events include the RBNZ rate decision, UK January CPI, and FOMC minutes (18 Feb), Australia jobs data (19 Feb), and UK retail sales, PMIs, and US December core PCE (20 Feb). Central banks bought 1,136 tonnes of gold in 2022, worth about $70 billion. This was the largest yearly purchase on record. Gold often moves in the opposite direction to the US Dollar and US Treasuries, and it is priced in dollars (XAU/USD).

One Year Later Market Context

One year ago, the US Dollar Index was near 97.20 (February 2025). Now, with DXY trading around 104.50, dollar strength is the main trend traders need to respect. With January 2026 US inflation still sticky at 2.8%, options strategies that do not rely on a quick drop in the dollar may make more sense. In early 2025, markets focused on Canada’s CPI dipping to 2.3%. Since then, the bigger theme has been ongoing global price pressure. The upcoming FOMC minutes matter for the same reason they did last year: they may show how patient the Fed is willing to be. Traders may want to use derivatives to hedge volatility, because any sign of a longer “higher for longer” stance can lead to sharp moves. In February 2025, USD/JPY was near 153.20 as traders discussed a more hawkish BoJ. The BoJ later moved away from negative rates, but the wide rate gap versus the US has still pushed the pair higher, recently near 158.00. The yen carry trade remains a major driver. As a result, selling yen call options or buying USD/JPY call spreads may still appeal to some strategies. In early 2025, there were already signs the UK labour market was weakening while GBP/USD traded near 1.3560. That softness, together with sustained dollar strength, has pulled GBP/USD down to about 1.2550 today. Given this steady trend, traders may want to be careful with long pound positions and consider put options to hedge further downside. Gold struggled to regain $5,000 a year ago. Even with ongoing geopolitical risks, it has remained capped by high interest rates and a strong dollar. Central banks have kept buying, with the World Gold Council reporting another 800 tonnes added in 2025. Still, this buying has mainly provided support rather than a strong catalyst. As a result, gold derivatives depend heavily on whether a trader expects a shift in US monetary policy. Create your live VT Markets account and start trading now.

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Gold dropped more than 3% on Tuesday as the US Dollar strengthened. Reports said US–Iran talks were making progress. XAU/USD traded near $4,869 after reaching a daily high of $5,000. The US Dollar Index rose 0.17% to 97.25. The US 10-year Treasury yield was 4.052% after falling by almost four basis points earlier. Mixed risk sentiment, higher yields, and a stronger Dollar pressured gold.

Market Drivers And Fed Expectations

Strong US jobs data and uncertainty about Federal Reserve rate cuts kept gold hovering around $5,000. ADP’s 4-week average showed job gains of 10.3K, up from a revised 7.8K. New York’s February Empire State Manufacturing Index showed better regional factory conditions. Markets reduced expected Fed cuts to 57 basis points from 62 basis points, based on CBOT data. The US and Iran started talks and agreed on key “guiding principles” during the second round in Geneva. Peace talks involving the US, Russia, and Ukraine were moved to Wednesday. Gold has posted lower highs for three straight days and hit a six-day low of $4,841. If price drops below $4,800, the next support is the 50-day SMA at $4,632. Above $5,000, resistance is at $5,100.

Options Positioning And Volatility

After gold’s sharp 3% drop yesterday, we see a potential opportunity in options. The failure to hold the key $5,000 level signals weakness. That makes bearish strategies—such as buying put options or selling call credit spreads—more appealing. The CBOE Gold Volatility Index (GVZ) jumped 9% in the last 24 hours, showing traders expect bigger price swings. Changing Fed expectations remain the main driver. Strong data cut expected rate reductions to 57 basis points from 62, helping the US Dollar regain strength. This morning’s Producer Price Index (PPI) report showed an unexpected 0.4% monthly rise. That supports the view that the Fed could delay easing, which typically hurts non-yielding gold. Geopolitical news is also reducing support for gold. Progress between Washington and Tehran lowers safe-haven demand. We saw a similar pattern in 2015, when comparable diplomatic efforts led to a multi-month drop in gold’s risk premium. Markets will watch the upcoming Russia–Ukraine talks closely. Any further easing of tensions could add to gold’s decline. Technically, the next key support is $4,800. A break below that level could lead to a move toward the 50-day moving average near $4,632. We would consider put options with strike prices near $4,800 to benefit from a possible breakdown. Looking ahead, the Core PCE inflation report is the most important event on the calendar. In 2025, gold moved an average of 2.1% on Core PCE release days. Volatility may be high again, so traders should be ready for sharp moves, as this data can strongly shape the Fed’s next decision. Create your live VT Markets account and start trading now.

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BNY’s Americas Macro Strategist John Velis is keeping his forecast for three Federal Reserve interest rate cuts by year-end. Market pricing points to a little more than two cuts, with the December OIS contract implying 56bp of easing. He says recent headline labour data may overstate strength because job gains in the establishment survey were concentrated in Health Care. He adds that this sector has driven nearly all job creation since 2024, leaving a narrow base for overall employment growth.

Fed Cuts Outlook

He notes that inflation has improved versus a few months ago, but it is still above the Fed’s 2% target. He also points out that inflation did not pick up in the latest month. If disinflation continues, this could weaken the case for more hawkish views on the FOMC. We are sticking with our call for three Federal Reserve rate cuts by the end of 2026. That is almost one full cut more than the market is pricing. The market is currently pricing 56bp of easing, based on December OIS contracts, and we see this as a clear opportunity. This gap between our view and the market’s view is the basis for our trading strategy in the coming weeks. The strong headline jobs numbers can be misleading and may hide weakness in the labor market. In the 2025 data, most job growth was concentrated in acyclical sectors such as Health Care. That trend continued in the January 2026 report, when more than a third of job gains came from Health Care alone. This narrow base is a concern for the broader economy and supports a more dovish Fed. Recent inflation data also supports our view. Inflation is still above the Fed’s 2% target, but the trend is encouraging. The January 2026 CPI report showed core inflation holding at 2.8%. That was the fourth straight month without an increase from the lows seen at the end of 2025. If this disinflation trend continues, it should weaken the arguments of more hawkish committee members.

Trading Strategy Ideas

Based on this view, traders may want to position for more Fed easing than the market currently reflects. One approach is to buy December 2026 SOFR futures, which should rise if the market starts to price in a third rate cut. Another direct way to express this view is to enter receive-fixed positions in interest rate swaps for the end of the year. The gap between our forecast and the market consensus also suggests interest rate volatility may be underpriced. If upcoming data forces the market to quickly reprice the expected path of the federal funds rate, volatility could rise. As a secondary strategy, traders could consider long-volatility positions using instruments such as swaptions. Create your live VT Markets account and start trading now.

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Federal Reserve Governor Michael Barr said recent US data suggests the job market is stabilising. He spoke on Tuesday at the New York Association for Business Economics in New York. Barr said it is still reasonable to expect price pressures to cool further. He also warned there is a risk inflation stays above 2%.

Fed Sees Labor Market Stabilising

Barr said the job market looks balanced, but it could still be hit by shocks. He said he wants more proof that inflation is moving back toward the 2% target. He said the outlook points to the Fed keeping interest rates unchanged for a while. He added that it is wise to take time and review the data before making any new policy move. On artificial intelligence, Barr said it should increase productivity and improve living standards over the long term. But he said the AI boom is unlikely to lead the Fed to cut rates. He said policymakers should be ready for the possibility of serious short-term disruption in the labour market, even if the long-term benefits are positive. He also said there is little evidence so far that AI is raising unemployment.

Trading Implications For Higher Rates

The Federal Reserve appears set to keep interest rates steady in the near term. Officials want clearer proof that inflation is consistently moving back to the 2% target. The January 2026 inflation report showed core inflation still high at 2.8%. That supports the Fed’s cautious approach and suggests a rate cut is not close. This backdrop may keep market volatility muted in the coming weeks. With the Fed not signalling a near-term shift, large policy-driven moves are less likely. In that setting, some traders may look at strategies that sell options premium on major indices. The CBOE Volatility Index (VIX) has reflected this calm tone, staying mostly between 14 and 16 for much of the new year. The Fed is watching a job market it describes as stable, but exposed to surprises. The January 2026 jobs report fit that view: payrolls rose by a solid 190,000, while the unemployment rate edged up to 3.9%. The market may feel steady now, but a weaker-than-expected jobs report could quickly change rate expectations and lift volatility. In 2025, markets repeatedly priced in rate cuts that did not happen. That pattern showed the Fed does not want to ease too soon. Last year’s experience should inform today’s approach, and it argues for caution toward rallies driven mainly by hopes of a quick policy pivot. The AI story is long term and should not be mixed up with near-term Fed decisions. AI may eventually boost productivity, but the Fed is focused on current inflation and labour data. The ongoing AI boom is unlikely to push the Fed toward rate cuts anytime soon. With price pressures expected to ease but inflation risks still present, “higher for longer” strategies may still make sense. This can include using options on interest rate futures to position for a patient Fed through at least the first half of the year. Recent years also show that trading against the Fed’s stated direction has often been a difficult bet. Create your live VT Markets account and start trading now.

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