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Australia’s July CPI rises to 2.8% year-on-year, exceeding expectations and boosting the AUD/USD pair
Construction work in Australia increased by 3.0%, surpassing expectations, while the CPI hit 2.8% year-over-year.
In the second quarter of 2025, Australia saw a 3.0% increase in construction work done. This was much higher than the expected 0.8% rise and is the best growth since early 2023.
The construction work data includes both residential and non-residential buildings, as well as engineering projects. Previous reports showed no growth, making this quarter’s results stand out.
Australian Consumer Price Index
At the same time, the Australian monthly Consumer Price Index (CPI) drew attention. In July 2025, the CPI climbed 2.8% compared to the same month last year, exceeding the expected 2.3% increase. CPI figures are important because they signal higher inflation than anticipated in the country, guiding economic forecasts and potential changes in policy. The unexpected rise in July’s inflation to 2.8% is a key focus. This significantly surpasses predictions and brings inflation closer to the top limit of the Reserve Bank’s target range. Thus, the Reserve Bank of Australia (RBA) can no longer take a wait-and-see approach.Interest Rate Decisions Ahead
The strong construction results, with a 3.0% increase, support a more aggressive stance. This is the best growth we have seen since the first quarter of 2023, indicating that the economy is stronger than previously thought. This gives the central bank a reason to raise interest rates without worrying about an immediate economic setback. We should adjust interest rate expectations to reflect a higher likelihood of a hike at the September meeting. With the cash rate at 4.35%, the market has quickly adapted to this new outlook. Overnight Index Swaps now suggest there is over a 75% chance of a 25-basis-point increase, a significant rise from the 20% chance indicated yesterday. This change in rate expectations is positive for the Australian dollar, as higher yields attract foreign investment. The currency has already risen past 0.6750 against the U.S. dollar due to this news. There are opportunities to use options to position for further Australian dollar strength against currencies with more dovish central banks. For equity markets, we foresee challenges as borrowing costs are likely to increase. This situation mirrors the difficulties faced by the ASX 200 during the aggressive interest rate hikes that ended in 2024. We might consider buying put options to hedge portfolios against a potential market drop in the coming weeks. Create your live VT Markets account and start trading now.PBOC sets USD/CNY central rate at 7.1108, beating the expected 7.1559
The People’s Bank of China (PBOC) manages the daily midpoint for the yuan, also known as the renminbi or RMB. China uses a managed floating exchange rate system that allows the yuan to fluctuate within a range of +/- 2% around this central rate.
Recently, the PBOC set the midpoint at 7.1108, stronger than the estimated rate of 7.1559. This is the strongest position for the yuan since November last year. Additionally, the PBOC injected 379.9 billion yuan through 7-day reverse repos at an interest rate of 1.40%.
Net Drain in the Financial System
On this day, 616 billion yuan will mature, resulting in a net drain of 236.1 billion yuan from the financial system. Today, August 27, 2025, the PBOC has clearly indicated its intention by setting the yuan’s reference rate significantly stronger than expected. This strong fixing signals that the authorities will not accept a rapid drop in the currency’s value. We can expect a period of stability in the USD/CNY exchange rate. This move aligns with last month’s economic data. In July 2025, industrial production grew by 3.1%, below the expected 3.5%, and capital outflow indicators showed nearly $20 billion leaving the country. A strong currency fixing helps to address these negative trends and reduce speculative bets against the yuan.Implications for Traders and Speculators
For options traders, this implies that the implied volatility in USD/CNY may be too high in the short term. Last week, the 1-month implied volatility index for the offshore yuan (CNH) reached 6.8%, a high not seen since early 2025. A strategy like selling straddles or strangles to earn premium might be effective, as the central bank is likely to maintain a tighter trading range soon. Traders holding long positions in USD/CNY should reconsider this approach, as opposing a strong central bank can be risky. Instead, looking for relative value trades, such as buying other Asian currencies against the dollar, could be wise. A stable yuan often benefits the whole region, just as a weakening yuan in late 2024 harmed the Korean won and Thai baht. The current net drainage of liquidity, despite the strong fixing, is a strategic move to raise the cost of shorting the yuan. By making overnight funding in the offshore CNH market more expensive, it deters speculators and reinforces the central bank’s message. This strategy proved effective during the turbulent times of 2023 and 2024 in curbing depreciation pressures. Create your live VT Markets account and start trading now.The Australian leading index shows a small increase, indicating a sluggish economic recovery.
The Westpac-Melbourne Institute Leading Index, which predicts future economic activity, showed a small rise in its growth rate. It increased to 0.12% in July from 0.01% in June, suggesting a slow and steady economic recovery.
However, this recovery faces challenges due to falling commodity prices and a stronger Australian dollar. The job market also appears weaker, with other sectors lacking clear direction.
Australian Dollar Stability
The exchange rate of the Australian dollar to the US dollar remains steady at about 0.6494. The latest data from the leading index confirms our assessment of a stalled Australian economy. This slow recovery barely shows any movement, with the growth rate just above zero. This means we expect economic activity to stay below its long-term average for the rest of 2025. A significant challenge is the drop in commodity prices, which continues to affect the economy. This month, iron ore prices fell below $100 per tonne due to renewed concerns about demand from China. This decline impacts our national income and limits any potential strength in the Australian dollar. Moreover, the labor market is softening, which weakens a key support for the economy. The unemployment rate for July, released in mid-August 2025, rose to 4.2%, confirming a cooling trend. This slowdown in job growth will likely keep wage increases in check and consumer spending low.Interest Rate Outlook
As inflation moves closer to the Reserve Bank of Australia’s (RBA) target range, with a Q2 figure of 3.1%, there is little urgency for the central bank to raise interest rates from the current 3.85%. We expect the RBA to maintain its cautious approach, which may limit any gains for the AUD/USD, currently hovering around 0.6450. Thus, selling out-of-the-money call options on the AUD/USD to collect premium seems wise, as a significant price rally seems unlikely. Looking back, this stagnant price behavior is similar to the range-bound market we experienced throughout most of 2023, when economic data lacked clarity. The current implied volatility on AUD options is low, indicating the market expects this sideways trend to continue. This low-volatility situation supports strategies that benefit from time decay and limited price changes, like short straddles. Create your live VT Markets account and start trading now.A crypto fund manager has applied for an innovative ETF linked to Trump’s meme coin.
Crypto fund manager Canary Capital has filed to create a spot ETF that would be the first on Wall Street directly linked to the meme coin, TRUMP, named after President Trump. Previous filings this year suggested obtaining exposure through Cayman subsidiaries and U.S. Treasuries, but Canary’s new application follows the Securities Act of 1933 for full and direct exposure to the token.
If approved, the Canary TRUMP Coin ETF would keep a reserve of TRUMP tokens under strict custody regulations, likely in the United States. This would be a regulatory milestone for a meme coin ETF.
News of the potential TRUMP coin ETF has sparked significant speculation in the market. The token’s price jumped over 45% to $21.50 in the last 24 hours, fueled solely by this filing. This indicates that traders can expect high volatility in the coming weeks.
Derivative markets are also reacting, with implied volatility on TRUMP options reaching over 200%. Traders should brace for sharp price movements, whether up or down, due to rumors or official updates from regulators. Strategies that benefit from volatility, like long straddles, may be worthwhile, although they come with a high cost.
We should consider how the market reacted to spot Bitcoin ETF approvals in early 2024. In that case, prices rose due to anticipation but then dropped significantly right after the official approval. This history suggests that trading ahead of the decision may yield more profit than the event itself.
The perpetual futures market is another important area to monitor, with open interest doubling to over $500 million. We expect funding rates to rise as long positions dominate, making it costly to stay bullish. This provides traders an opportunity to earn high funding fees by taking a contrarian short position, as long as they manage the risk of further price jumps.
PBOC expected to set USD/CNY reference rate at 7.1559, according to Reuters
The People’s Bank of China (PBOC) sets a daily midpoint for the yuan (RMB) using a managed floating exchange rate system. This allows the currency to move within a set range, currently at +/- 2% of the midpoint.
Each morning, the PBOC calculates the yuan’s midpoint against various currencies, with a primary focus on the US dollar. This calculation takes into account market factors such as supply and demand, economic indicators, and global currency movements. The midpoint serves as a reference for trading that day.
Yuan Trading Band
The yuan can fluctuate within a specific range around the midpoint, which is currently +/- 2%. This means the yuan can appreciate or depreciate by up to 2% from the midpoint in a single trading day. The PBOC may adjust this range based on economic conditions and policy needs. If the yuan approaches the limits of this trading band or experiences significant volatility, the PBOC may step in. They can buy or sell yuan to manage its value and maintain stability. The PBOC is expected to set the USD/CNY reference rate at 7.1559, indicating an official recognition of the yuan’s recent weakness. This suggests that the authorities are open to guiding the currency lower in a controlled way. For traders, this reinforces the strategy of expecting a stronger dollar against the yuan. This potential reference rate allows the spot rate to drop further within its daily trading band. A midpoint of 7.1559 means the yuan could weaken up to 7.2990 before reaching the 2% upper limit of its band. Traders might consider buying USD/CNY call options with strike prices between 7.25 and 7.30 to take advantage of this expected move.Economic Outlook and Trade Strategy
The economic outlook supports this perspective, as China’s export growth figures for the second quarter of 2025 fell short of expectations. Meanwhile, the U.S. Federal Reserve has kept its interest rates high this year, continuing the policy differences that started in 2022. The interest rate gap, with U.S. rates at 5.25% and China’s benchmark at 3.45%, continues to attract investment towards the dollar. However, we should be careful about how fast the yuan might depreciate. In 2023 and 2024, the central bank often set the daily fix stronger than market predictions to avoid drastic changes. This history indicates that while the yuan is heading down, the decline will be managed and gradual. Given the chance of intervention to slow the depreciation, implied volatility in the options market may not rise significantly. Therefore, while buying options for directional trading seems wise, we should be cautious about overspending. Structured products that benefit from a slow, steady increase in USD/CNY—rather than a sudden surge—could be a better strategy. Create your live VT Markets account and start trading now.China’s trade envoy will discuss tariffs and tech limits in Washington amid Trump’s strong threat.
China Sends Senior Trade Official to Washington for Talks
China is sending senior trade official Li Chenggang to Washington for important discussions. This is the first time in several years that such talks will happen in the U.S. capital. Li will meet with representatives from the United States Trade Representative, Treasury officials, and American business leaders.
These talks come after a tariff agreement in May, which lowered U.S. duties on Chinese goods from 145% to 30%. At the same time, China reduced its tariffs on U.S. products from 125% to 10%. The initial trade truce in May was extended in July, and previous meetings took place in Europe to ease tensions.
In Washington, Li is likely to discuss U.S. soybean purchases, tariffs related to fentanyl, and restrictions on technology sales to China. The situation remains tense, as the U.S. has threatened heavy tariffs if China limits rare earth exports.
Financial Market Impact
With high-level trade talks resuming in Washington, we should expect increased market volatility in the coming weeks. The VIX, a key measure of market fluctuations, has been relatively steady around 16. However, it surged past 30 during similar trade tensions in 2024. This suggests the need to prepare for uncertainty rather than commit to a specific market direction.
Given the uncertain nature of these negotiations, using options to create straddles or strangles on major indices like the S&P 500 or Nasdaq 100 is a smart strategy. This approach benefits from large market moves in either direction, providing protection if talks suddenly fail or if a surprising agreement is reached. The PHLX Semiconductor Index (SOX) has increased over 20% since the May truce, making this sector a key area to monitor.
The currency market, particularly the U.S. dollar compared to the Chinese yuan (USD/CNY), is also anticipating potential volatility. Implied volatility for one-month USD/CNY options has risen 12% in the past week, indicating traders expect significant movements from the current stable level around 7.25. A positive outcome from the talks is likely to strengthen the yuan, while a negative one would weaken it significantly.
We should also pay attention to commodities mentioned in the discussions. Historical data shows that U.S. soybean exports to China fell by over 50% at the peak of the trade war in the early 2020s, highlighting the direct impact of these talks. Currently, USDA figures indicate exports have recovered to about 32 million metric tons annually, but any negative news could quickly affect soybean futures. This makes puts on agricultural ETFs a wise hedge.
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Ethereum attracts renewed investor interest as BlackRock buys $315 million and ETFs draw in $444 million
BlackRock recently bought $314.9 million worth of Ethereum over five days. This shows growing confidence in Ethereum’s future.
Spot Ethereum ETFs saw net inflows of $443.91 million, indicating increased interest from institutional investors in cryptocurrencies.
Ethereum’s price had faced pressure recently, but it began to recover on Tuesday.
BlackRock’s purchase of Ethereum, along with strong flows into spot ETFs, marks a significant change in market sentiment. Total net inflows for spot Ethereum ETFs in August 2025 have now surpassed $1.2 billion. This level of buying helps support the price, suggesting that dips may be shorter and bought up faster in the upcoming weeks.
Implied volatility is picking up as traders anticipate bigger price movements. The ETH DVOL index, which fell to a 90-day low of 48 last week, has risen to 55, meaning options are becoming pricier. Traders may want to consider strategies like buying call spreads to manage risk while still capturing potential gains.
In the options market, there’s a noticeable bullish trend. Open interest for September 2025 month-end calls has surged around the $5,500 and $6,000 strike prices. The 25-delta skew has turned positive for the first time since June 2025, showing that demand for upside calls is much higher than for downside puts. This indicates traders are getting ready for a move towards previous all-time highs.
The futures market reflects this confidence as well. The CME futures curve for ETH has steepened, with the December 2025 contract trading at a $150 premium over the spot price, up from $60 at the beginning of the month. This setup encourages holding long positions and suggests that leveraged traders expect this rally to continue.
This trend of institutional inflows is similar to what we saw after the approval of spot Bitcoin ETFs in early 2024. That event triggered a multi-month rally driven by significant buying instead of retail speculation. History suggests that these Ethereum inflows could lead to a similar sustained uptrend through the end of the year.
Japan’s chief trade negotiator Akazawa is returning to the US to discuss Japanese investments.
Japan’s chief trade negotiator, Akazawa, will visit the United States on Thursday. This trip will focus on discussions about Japanese investment in the US, according to Asahi TV.
The goal is to strengthen economic ties between the two countries. However, they have not shared specific details about which sectors will be involved or any financial figures.
US Dollar and Yen Dynamics
With talks centered on Japanese investment in the US, we can expect a rise in demand for the US dollar against the yen. This supports a positive trend for USD/JPY, especially since Japanese foreign direct investment in the US hit a record of over $750 billion in 2024. These upcoming discussions could maintain this strong capital flow. Investors may want to consider taking long positions in USD/JPY, possibly through call options. Options set to expire in the next few weeks with strike prices above 170.00 seem appealing, especially since the pair has recently been stable around 168.00. The rise in implied volatility to 12% for one-month contracts indicates that the market is anticipating significant movement after the talks. A weaker yen could benefit Japanese stocks, particularly major exporters. We expect potential gains in the Nikkei 225 because a lower currency increases the value of foreign earnings. This outlook is backed by earnings reports from the last quarter of 2024, where exporters frequently exceeded forecasts due to currency fluctuations.Possible Risks and Considerations
It’s important to keep an eye on the risk of intervention from Japan’s Ministry of Finance. For instance, in late 2024, when the yen fell below 160, swift actions were taken to support the currency. Any news indicating official concern may be a good opportunity to take profits on long USD/JPY positions. Create your live VT Markets account and start trading now.Woolworths Group’s profit drops 19% to A$1.39 billion, meeting market expectations
Woolworths Group saw its underlying profit drop by 19% for the full year. This decline is largely due to cost-of-living pressures impacting spending in their Australian Food and BIG W divisions.
For the year ending 29 June, net profit after tax was A$1.39 billion. This is down from A$1.71 billion last year, but it aligns with the expected A$1.38 billion.
