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PBOC sets USD/CNY central rate at 7.1063, stronger than expected
The People’s Bank of China (PBOC) determines the daily midpoint for the yuan (renminbi) within a managed floating exchange rate system. This system allows the yuan to vary within a +/- 2% range from a central reference rate.
The last closing value was 7.1500, but the new USD/CNY rate is 7.1063. This is the strongest value for the yuan since November 6 of last year.
Li Chenggang engages in constructive discussions to improve China-Canada trade relations in Canada.
China’s chief trade negotiator, Li Chenggang, recently came to Canada for important talks. He co-led the Joint Economic and Trade Committee meeting in Ottawa, where both sides discussed ways to boost trade relations.
Strengthening Economic Ties
The talks aimed to find practical ways to enhance the economic relationship between China and Canada. Both countries agreed to keep communication open to ensure progress. China is ready to resolve any differences with Canada through effective actions and positive discussions. This visit highlights a commitment to strengthen and grow the trade partnership. The recent meetings in Ottawa suggest that relations between China and Canada are stabilizing. This is a positive sign for key sectors, as it can reduce risks. Although there were no major breakthroughs, the focus on practical dialogue lowers the chance of new tariffs soon. This development helps ease the uncertainty that has affected some Canadian stocks throughout 2025. We believe this situation will lead to less volatility for Canadian assets with strong ties to China. Traders might explore strategies like selling puts on the S&P/TSX 60 ETF or specific commodity producers. After experiencing high volatility during trade disputes in early 2025, a return to stability seems likely.Opportunities In Trade Relations
This is particularly important for our commodity markets, especially in agriculture and potash. Bilateral trade fell by nearly 5% year-over-year in the first half of 2025, but a recovery could lead to increased shipments to China, which has historically imported over 3 million tonnes of Canadian potash each year. We expect renewed interest in futures contracts for these products. Improved relations may also support the Canadian dollar, which has been below the 0.73 USD mark during much of the third quarter. Enhanced trade flows could help the dollar break out of this range, making call options on the CAD/USD currency pair an appealing strategy. We are keeping an eye on a shift back to levels seen in late 2024. There are also opportunities with options on Canadian companies in the transportation and natural resources sectors that depend on Chinese demand. Over the past year, these companies faced higher hedging costs due to political uncertainties. With improving relations, these costs are likely to decrease, potentially benefiting their stock prices. Create your live VT Markets account and start trading now.In August, New Zealand’s business confidence increased to 49.7%, but personal outlook decreased to 38.7%.
Business confidence in New Zealand rose to 49.7% in August, up from 47.8% in July. This indicates that companies are feeling more optimistic about better business conditions as inflation rates drop.
However, the forecast for individual business activity has decreased. In August, only 38.7% of businesses expected growth, a decline from 40.6% in July.
Expectations for Economic Improvement
Overall, 49.7% of companies believe the economy will improve in the next year. This is an increase from the 47.8% optimism seen in July. This mixed report calls for caution in the weeks ahead. While the rise in overall business confidence is encouraging, the drop in firms’ expectations for their own activities reveals some underlying weaknesses. This situation may keep the New Zealand dollar fluctuating, as traders balance general optimism against specific challenges. The optimism seems to stem from easing inflation. The Q2 2025 Consumer Price Index showed a year-over-year increase of just 3.8%. This decrease reduces the pressure on the Reserve Bank of New Zealand to raise rates again, suggesting that the Official Cash Rate will stay steady at 5.50%. As a result, trading strategies that focus on lowering interest rate volatility may become more attractive.Diverging Confidence Metrics
The decline in the outlook for personal business activity from 40.6% to 38.7% serves as a warning for the domestic economy. This indicator has consistently predicted GDP performance, indicating possible challenges for corporate earnings. Traders may want to hedge long equity positions by buying put options on the NZX 50 index. We observed a similar pattern of diverging confidence metrics in late 2022, when the economy faced peak inflation and aggressive rate hikes. During that time, the NZD/USD exchange rate showed substantial volatility without a clear direction. This historical context suggests that options strategies designed to benefit from a volatile or range-bound market, like selling strangles, could be useful. Create your live VT Markets account and start trading now.The Bank of Korea keeps the base rate at 2.5% while predicting GDP growth and inflation rates.
The Bank of Korea has kept its interest rate steady at 2.5%, which matches expectations after a thorough review.
For South Korea’s economy, GDP growth is forecasted to rise by 0.9% in 2025 and by 1.6% in 2026. Inflation predictions have also changed, with the bank expecting it to be 2.0% in 2025, slightly up from 1.9%. By 2026, inflation is projected at 1.9%, which is just above the previous estimate of 1.8%.
Governor Rhee’s Press Conference
Governor Rhee Chang-yong will hold a press conference at 0210 GMT, or 2210 US Eastern Time. This event could provide more details about the bank’s choices and what the future holds for the economy. While the Bank of Korea’s decision to keep rates at 2.5% is not surprising, the new growth forecasts are concerning. The GDP growth prediction for 2025 has been cut to only 0.9%, indicating worries about the economy’s stability. This low growth forecast raises the chance of future rate cuts, even with inflation at the target of 2.0%. We should also expect the Korean Won to weaken against the US dollar. Since the US Federal Reserve has its rates around 3.75% as of last month, the difference makes holding dollars more appealing. If the Bank of Korea hints at easing its monetary policy, the pressure on the Won may increase. The outlook for the KOSPI index appears tough for now. The significant reduction in the growth forecast suggests lower corporate earnings, especially after a 5.2% drop in exports in July 2025. Although future rate cuts might provide some support, the immediate challenge comes from a slowing economy.Market Volatility Expectations
The governor’s press conference today is a key event that could create market volatility. People will closely watch his tone for clues on when to expect potential easing. Options on the USD/KRW pair could be used to prepare for a big price shift, as his comments might influence the currency significantly. This situation feels like what we witnessed in late 2019, just before the pandemic, when declining global demand led the Bank of Korea to start cutting rates. Back then, early signals hinted at a change in policy months before it happened. We may be entering a similar phase where the central bank’s guidance heavily influences the market. Create your live VT Markets account and start trading now.China concerns and declining cloud spending cause drop in Nvidia’s stock performance
Nvidia’s stock dropped 3.2% in after-hours trading after the company expressed concerns about its sales in China. Nvidia did not include revenue from China in its Q3 guidance, pointing to possible regulatory issues. This move, along with signs of reduced spending in cloud services, lowered market expectations, even though their forecasts still surpassed Wall Street projections.
Q3 Projections And Challenges
For Q3, Nvidia estimates revenue of $54 billion (±2%), which is slightly higher than the predicted $53.1 billion. However, its Q2 data center sales were $41 billion, just shy of what was expected. Nvidia has left out potential sales of its H20 chips to China in its guidance but mentioned that improvements in geopolitical relations could add between $2 to $5 billion. Despite this cautious outlook, there’s still strong demand for AI processors. Initiatives like “sovereign AI” are projected to bring in $20 billion this year. Nvidia anticipates that investments in AI infrastructure could reach $4 trillion by the end of the decade. In Q2, nearly half of Nvidia’s data center revenue came from large cloud providers, but there are worries that spending may tighten if AI returns are hard to measure. The drop in Nvidia’s stock, even with a revenue forecast above estimates, adds uncertainty for the near future. Implied volatility for options in September and October surged to over 55% after the earnings call, suggesting that the market expects bigger than usual price shifts, making this a good time for options trading. The new worries about China sales create a significant challenge. Traders might consider put options to hedge against or speculate on further declines. Reflecting on past regulatory shocks, we see how quickly geopolitical issues can impact valuations. With China once making up about 20% of data center revenue in some quarters, its exclusion from guidance poses a real risk.Investment Strategies Amidst Volatility
On the flip side, this stock dip could be an opportunity for those optimistic about long-term AI growth. Call options or bull call spreads may be appealing. The projection that “sovereign AI” could generate $20 billion this year signals strong new revenue sources beyond traditional cloud providers. Industry data supports this, predicting that the global AI infrastructure market will grow at over 30% annually through the decade. Given the mixed signals from both bullish and bearish sides, a strategy that takes advantage of volatility, like a long straddle, could be beneficial. This entails buying both a call and a put option, which can profit if the stock moves significantly in either direction before expiration. Any news regarding U.S. chip sale approvals or major announcements from cloud providers could easily cause such a move. For those who want to manage costs and limit risk, spreads are a more cautious option. A bull call spread can capture potential gains from a rebound, while a bear put spread allows a defined-risk approach for those anticipating a decline. These strategies can be particularly useful in today’s high-volatility environment because they involve selling one option to help cover the cost of another. Create your live VT Markets account and start trading now.PBOC expected to set USD/CNY reference rate at 7.1479, according to Reuters estimates
The People’s Bank of China (PBOC) sets the daily midpoint for the yuan. This midpoint is part of a managed floating exchange rate system, allowing the yuan to move within a specific range centered around a reference rate.
Currently, the trading band is set at +/- 2%, which limits how much the yuan can change in one day. Each morning, the PBOC determines this midpoint in relation to several currencies, with a focus on the US dollar, while considering market trends.
Yuan Movement Limitations
The yuan can only fluctuate within the +/- 2% band around this midpoint. If the yuan approaches these limits or becomes too volatile, the PBOC might step in to stabilize it. The PBOC might buy or sell yuan to keep its value in check. This method allows for slow, controlled changes in the yuan’s value based on economic conditions and policy goals. The market expects the yuan’s reference rate to be 7.1479, indicating a trend of gentle depreciation. This is influenced by ongoing pressures, like the interest rate difference between the US and China. US 10-year yields are about 4.3%, while China’s are at 2.4%. This makes holding US dollars more appealing, which can cap the yuan’s value. We need to monitor the daily midpoint against market expectations in the coming weeks. In 2023 and 2024, the central bank often set the daily midpoint stronger than expected to slow the yuan’s decline. If this trend continues, it shows an official intent to keep the currency stable and prevent it from weakening too quickly.Investment Strategies In Yuan Environment
In this managed environment, implied volatility for derivatives may be too high. Recently, one-month USD/CNH implied volatility reached 4.5%, but due to the PBOC’s tight control, a sudden large change is unlikely. Strategies like selling option strangles or straddles could work well to take advantage of this expected stability. Holding long USD/CNY positions through the forward market also remains appealing. The interest rate difference means traders earn money by holding dollars against the yuan. This strategy is effective if we expect the central bank to allow steady depreciation rather than a major strengthening of the yuan. A major risk to this outlook would be unexpected policy changes from Beijing to stimulate the economy or weaker US economic data that changes interest rate predictions. We noticed how quickly sentiment shifted after surprise policy announcements in late 2024. Therefore, employing defined-risk strategies, like buying USD/CNY call spreads, might be a wiser way to express a bullish view on the dollar. Create your live VT Markets account and start trading now.Reports suggest that Japan’s trade negotiator Akazawa is canceling his visit to the US.
Japan’s chief trade negotiator, Akazawa, may cancel his trip to the United States, according to Kyodo News. He was scheduled to discuss Japanese investment plans in the US.
The current USD/JPY exchange rate has slightly risen from recent lows, now sitting at around 147.45.
Cancellation Of High-Level Meeting
The cancellation of this important meeting brings uncertainty to US-Japan economic talks. It could create tension that affects the expected flow of capital. For traders in derivatives, we should expect an increase in implied volatility for USD/JPY options in the next few weeks. With the exchange rate near 147.50, we may see currency intervention becoming a real possibility. Recall the rapid gains in the yen after the Ministry of Finance intervened in late 2022 and again in 2024 when similar levels were reached. This makes purchasing JPY call options, or USD/JPY put options, a more appealing strategy to protect against a sudden downturn. This development comes as Japan reported its latest core CPI data at 2.3%, stubbornly above the Bank of Japan’s 2% target. On the other hand, recent jobs data from the US showed a slight slowdown, which strengthens market views that the Federal Reserve will keep rates steady. The narrowing gap between the two central banks’ policies is already creating challenges for the dollar against the yen.Impact On Japanese Investment
A key focus of the cancelled talks was Japanese investment, with Japanese funds holding over $1.2 trillion in US Treasury securities. Any delays or disruptions to future investment plans could lessen demand for the US dollar. This indicates that, even without direct intervention, the likely direction for USD/JPY may be downward. Create your live VT Markets account and start trading now.BofA suggests that autumn market pullbacks may present buying opportunities amid increasing uncertainty and volatility
Bank of America believes that a market pullback this autumn could be a good buying chance, especially since market volatility is likely to increase from its low levels. The VIX index recently reached its lowest point of the year after calm comments from Federal Reserve Chair Jerome Powell. However, this calm may not last due to worries about a potential AI bubble and political risks that could affect the Fed’s independence.
Several factors might disrupt the markets, such as Nvidia’s upcoming earnings report and “stagflationary” data that could hinder the Fed’s efforts to ease policies. Despite these challenges, Bank of America thinks any market corrections will be short-lived. They point out that while pullbacks happen during asset bubbles, current volatility indicators do not suggest we’re at a market peak.
Strong Dip Buying Activity
The strong dip-buying activity, one of the highest levels since the global financial crisis, indicates that any autumn sell-off could rebound quickly. Responses from both Powell and President Trump could also help stabilize the markets during stressful times. With market volatility being unusually low, we should expect an increase in volatility soon. The VIX index is currently around 11.5, a low that suggests a significant sense of calm after the Fed’s recent comments. This stability seems fragile, especially as the S&P 500 is near all-time highs. Several events could trigger changes, putting short-term pressure on stocks. We’re keeping an eye on upcoming earnings from AI-focused companies like Nvidia, which has a high price-to-earnings ratio of over 90. Recent mixed economic data also raises concerns, with inflation at 3.1% according to the latest PCE report, even as weekly jobless claims go up. This suggests stagflationary pressures could limit the Fed’s actions.Opportunity for Derivative Traders
For derivative traders, this situation offers an opportunity to buy low-cost protections. With implied volatility so low, buying VIX calls or out-of-the-money puts on major indices for September or October expiration could be an effective way to guard against a potential autumn pullback. The aim isn’t to bet on a crash, but to take advantage of a likely rise in market anxiety. Any sell-off is expected to be brief and could present a buying opportunity. We have seen strong dip-buying, with net inflows into equity ETFs after 1% down days reaching their highest levels since the recovery period after 2008. This suggests there is a robust base of buyers ready to jump in at any sign of weakness. Thus, a good strategy would be to prepare to sell volatility once it spikes. If the market corrects by 5-7%, selling cash-secured puts on indices or high-quality stocks could be a smart move to generate income or acquire shares at a better price. The general sentiment is that political leaders will likely make supportive statements to stabilize any significant market downturns and help maintain asset prices. Create your live VT Markets account and start trading now.UK services sector confidence and activity decline again due to high costs and low demand
UK services companies are facing ongoing challenges, with a drop in confidence and activity reported for August by the CBI. High costs and weak demand are hurting profits, jobs, and investment. Meanwhile, the Bank of England is cautious about inflation trends.
The CBI noted that while confidence and activity in the services sector decreased in August, the decline was not as severe as in May. Optimism remains lower than last year. Companies are facing high costs but are raising prices more slowly, which keeps inflation steady in the service sector.
Current Economic Challenges
Weak demand and increasing costs are affecting hiring, investment, and profits. Deputy Chief Economist Alpesh Paleja suggested that the government should implement measures to encourage growth without raising taxes. He also mentioned revising plans for new worker rights that could raise business costs. However, finance minister Rachel Reeves is likely to move forward with tax increases in the upcoming autumn budget. Service firms expect only modest activity in the next three months, although the decline may slow compared to earlier quarters. While cost pressures may gradually lighten, they remain high by historical standards. Given the ongoing issues in the UK services sector, it seems the Bank of England will keep interest rates steady longer than the market anticipates. Persistent cost pressures, despite slower price increases, will likely keep the Bank cautious about inflation. Therefore, investing in Short-Term Interest Rate (STIR) futures, such as SONIA, to bet on fewer rate cuts by early 2026 might be a smart strategy. This outlook is supported by recent ONS data, showing services inflation at 5.9%, significantly higher than the overall CPI rate of 2.1%. At the same time, the economy only grew by 0.2% last quarter, highlighting weak demand. This mix of stagnant growth and inflation complicates the Bank’s decisions and suggests a cautious approach ahead.Impact on Markets and Assets
For equity traders, ongoing pressure on profits and investment in a vital part of the UK economy indicates potential risks, especially for the domestically-focused FTSE 250 index. Traders might consider buying put options on the index or shorting futures to hedge against expected modest activity over the next three months. The finance minister’s commitment to tax increases may worsen this negative outlook. In the currency market, the British pound is experiencing mixed pressures, creating a volatile environment. While sustained high interest rates usually support a currency, a poor growth outlook acts as a drag. This implies that GBP might struggle against currencies from stronger economies. Using options to trade on increased volatility for pairs like GBP/USD may be more effective than making direct bets. We witnessed a similar situation during the 2023-2024 period when a weakening economy did not lead to rate cuts due to stubborn inflation. This suggests that markets can react too quickly to expect monetary easing when the central bank is focused on inflation. This historical context reinforces the expectation of continued caution from policymakers in the weeks ahead. Create your live VT Markets account and start trading now.UBS predicts that the Swiss franc will remain strong even with possible negative rate cuts by the SNB.
The Swiss franc is likely to stay stable even if the Swiss National Bank (SNB) cuts interest rates into negative territory. It remains a top choice for safe-haven investments worldwide, suggesting that negative rates alone may not weaken it during times of uncertainty.
