Market Analysis

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Investing Strategy

The recent rise of GBP/USD above 1.3500 is an important signal, fueled by a weakening US dollar amidst geopolitical tensions and disappointing economic data. This should be seen as more than just a temporary spike; it suggests a possible medium-term trend shift. The weak US Non-Farm Payrolls report from last Friday, with only 85,000 jobs added versus an expected 170,000, supports this claim. While the Bank of England has indicated a “gradual downward path” for interest rates following its cut in December 2025, the weak US data is altering the landscape for the Federal Reserve. Markets are now predicting a 75% chance of a 50 basis point cut from the Fed next month, signaling a faster pace of easing compared to the BoE. This growing interest rate gap favoring the pound is a strong reason to be optimistic about the pair. Given this outlook, we recommend buying GBP/USD call options with strike prices around 1.3650 and 1.3700, set to expire within the next one to three months. Geopolitical tensions in Venezuela have increased implied volatility, making options more expensive, but this also indicates potential for sharp upward moves. This strategy allows us to take part in further gains while clearly defining the risks involved. For those with a moderately bullish outlook, selling out-of-the-money put spreads on GBP/USD could be a smart way to earn premium while betting that the pair won’t drop significantly. We noticed that the pair struggled below 1.3200 through much of the third quarter of 2025, so the current level marks a significant breakthrough. This makes former resistance levels a possible new support base. Create your live VT Markets account and start trading now.

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The GBP/USD pair went up past 1.3500 because the US Dollar weakened. This drop was due to rising geopolitical tensions and disappointing economic numbers. The US ISM Manufacturing PMI has now shrunk for the tenth straight month, falling from 48.2 to 47.9, while forecasts expected it to stay at 48.3. The US Dollar’s decline is reflected in the US Dollar Index, which dipped by 0.03% to 98.39. Concerns about the US economy continue to grow, with the latest GDP showing a 4.3% annual growth for the third quarter. Neel Kashkari, the President of the Minneapolis Fed, commented that inflation is still too high.

Geopolitical Events and Market Impact

Recent geopolitical events, such as US actions in Venezuela, influenced currency markets over the weekend and somewhat supported the dollar in Asia and Europe. In the UK, interest rate cuts from the Bank of England are anticipated this year, with the market estimating cuts of 41.3 basis points. Looking ahead, there is little economic data expected from the UK, while the US will soon release critical indicators. Technical analysis suggests that GBP/USD may continue to rise beyond December’s peak. The accompanying table shows the percentage changes of major currencies compared to one another, highlighting the British Pound’s strength against the Canadian Dollar. With GBP/USD hovering around 1.3500, our focus shifts to the upcoming US Nonfarm Payrolls report. The recent rise was spurred by weak manufacturing data, but the labor market will truly test the US Dollar. We might consider using short-term options to prepare for potential volatility around this report. Throughout most of 2025, we noticed that a strong US labor market contrasted with a shrinking manufacturing sector. For example, the December 2023 ISM Manufacturing PMI fell to 47.4, marking fourteen months below 50, yet the NFP report indicated 216,000 new jobs added. This history suggests that the next payroll data could easily exceed expectations and challenge the dollar’s weakness.

Binary Risk and Strategies

This situation creates a clear binary risk for the NFP announcement later this week. Given the chance of a significant surprise, buying a GBP/USD straddle could be a good strategy to capitalize on a possible breakout in either direction. The high implied volatility reflects this uncertainty, but the actual movement may be even greater if the data deviates significantly from predictions. On the UK side, while markets are anticipating rate cuts, we must not forget how stubborn inflation was last year. UK’s CPI fell from its peak, but core inflation, which hit 5.1% in December 2023, remained well above the Bank of England’s 2% target. This will likely make the BoE cautious about signaling cuts, which could limit the pound’s weakening for now. Thus, the pound’s current strength above 1.3500 could offer a chance to create bearish-to-neutral positions. We might consider selling call options with a strike price above the recent 1.3550 high to collect premiums, betting that the BoE’s cautious outlook will limit any rally. This strategy would work well if the pair remains steady or drops below the key 1.3500 level. Lastly, the geopolitical situation in Venezuela reminds us that headline risk can quickly shift market sentiment. This incident caused a brief movement toward the safety of the US Dollar, and similar events could happen again unexpectedly. This uncertainty supports maintaining some long volatility positions or purchasing low-cost out-of-the-money puts on riskier currencies as a hedge in a portfolio. Create your live VT Markets account and start trading now.

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Expectations are growing that China could lead the artificial intelligence race against the United States, shifting attention to Southeast Asian AI stocks. The gap between US and Chinese AI models is closing. In 2024, the US produced 40 notable models, while China contributed 15.

Cost Advantage of Chinese AI Models

Chinese AI models have a significant cost advantage. As a result, US startups like Airbnb prefer Chinese options, such as Alibaba’s Qwen AI, due to lower prices compared to their US equivalents. In 2025, Alibaba’s stock surged over 90%, thanks to heavy investment in AI infrastructure and widespread model adoption. Baidu has also seen stock growth of over 40%. The company is expanding its AI-powered robotaxi services, expected to further increase its revenue. Tencent has capitalized on early AI adoption across healthcare, gaming, and other sectors, establishing itself as a vital AI leader.

JD.com and iFlytek Driving Growth

JD.com is using AI to enhance its eCommerce services and continues to be a major player with growth potential. iFlytek specializes in voice recognition and R&D, and is expanding its presence into Europe to find more growth opportunities. China’s AI industry offers many investment possibilities, with significant potential for development into 2026 and beyond. The rise of cost-effective Chinese AI models urges us to rethink our strategies. With Alibaba’s 90% rise in 2025, its implied volatility is likely high. Instead of purchasing pricey outright calls on BABA, we should consider selling cash-secured puts at lower strike prices. This could earn us premium income or allow us to buy the stock if there’s a pullback. Baidu’s story focuses on its specific growth drivers, such as expanding robotaxi services into markets like Hong Kong and Dubai. This targeted growth makes bull call spreads an appealing, low-risk way to benefit from expected positive news in the coming weeks. Recent data has further increased the projected size of the global robotaxi market, supporting a cautious but optimistic approach. Tencent’s extensive AI integration in stable areas such as gaming and fintech provides another opportunity. Its large scale makes it a candidate for income generation through covered call strategies on existing long positions. Recent quarterly data revealed that Tencent’s AI-driven fraud detection reduced fraudulent transactions on WeChat Pay by over 25%, highlighting the value of its embedded AI. We must also consider the wider geopolitical risks in the US-China AI race. The potential for renewed chip restrictions from the US Commerce Department poses a real threat to the sector. A wise hedge would be to buy puts on a broad semiconductor ETF, like SOXX, to safeguard our long positions in Chinese AI against any sudden policy changes. iFlytek is an interesting potential catch-up play. Its focus on R&D indicates future growth catalysts might be on the way. Long-dated call options, known as LEAPS, could provide a means to position for a breakout later in the year without requiring significant capital upfront. This approach allows us to benefit if its planned expansion in Europe gains momentum and starts to positively impact revenue growth. Create your live VT Markets account and start trading now.

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The Japanese Yen has gained strength against the US Dollar, outperforming many G10 currencies. This comes from risk aversion linked to geopolitical issues, including concerns about Venezuela. Domestic bond yields in Japan reached their highest levels since 1999, helping the yen, while the USD/JPY pair stayed within a limited range of mid-154s to upper-157s with minimal options activity. The yen appreciated by 0.2% against the USD, standing out among G10 currencies amid widespread risk aversion. Japan’s 10-year government bond yield climbed 6 basis points to 2.12%, its peak since 1999. This rise is fueled by worries regarding Japan’s fiscal policy and the Bank of Japan’s ability to control inflation.

The Narrow US-Japan Yield Spreads

US-Japan yield spreads are decreasing, which traditionally supports the yen. Nevertheless, the options market reflects a lack of activity, with risk reversals showing a slight premium for those protecting against yen strength. The USD/JPY pair has been stable since mid-November, trapped in the mid-154s to upper-157s, with no expected significant changes unless it breaks out of this range. The FXStreet Insights Team gathers market observations from leading experts and insights from various analysts. Given the yen’s strength amid rising geopolitical risks from Venezuela and the South China Sea, there is a noticeable gap between fundamentals and the spot price. The USD/JPY pair remains tightly bound, creating tension for traders, indicating a buildup for a potential big move. The rise in Japanese government bond yields significantly supports a stronger yen. The 10-year yield hitting 2.12%, a level not seen since 1999, marks a striking change from the sub-1% yields experienced through much of 2023 and 2024. This increase is driven by ongoing domestic inflation; Tokyo’s core CPI in December 2025 stayed at 3.5%, putting substantial pressure on the Bank of Japan.

Interest Rate Differences Between US and Japan

This situation has caused the interest rate gap between the US and Japan to shrink, making the yen more desirable to hold. The difference between 10-year US Treasuries and Japanese Government Bonds (JGBs) has narrowed by over 50 basis points since November 2025. This points to a lower USD/JPY exchange rate. However, the options market presents a contrasting view, showing complacency with little movement in the spot market. One-month implied volatility for USD/JPY has dropped to a six-month low of 6.5%, suggesting traders are not preparing for a major change soon. This low volatility results in relatively cheap option premiums. In the upcoming weeks, there’s an opportunity to sell volatility while the currency pair remains between mid-154s and upper-157s. A short strangle strategy, selling puts around 154.50 and calls around 157.80, can capitalize on premium decay. This strategy is effective as long as the currency pair stays within this range. Alternatively, traders should be ready for a break below the range’s floor. Given the fundamental pressures, a significant drop below 154.50 could lead to a swift move toward the 152.00 level. Buying inexpensive, out-of-the-money USD/JPY puts can be a cost-effective way to prepare for this possible breakout. Create your live VT Markets account and start trading now.

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Mumbai, India, 5 January– In December 2025, VT Markets’ India team gathered at Versova Beach in Mumbai with 40 dedicated volunteers at daybreak, joining hands with Finanza, the finance and entrepreneurship festival of Mithibai College. Inspired by December’s spirit of togetherness and giving back, the team united with local youth volunteers in a meaningful effort that brought a sense of renewal and shared purpose to the shoreline.

As part of its expanding community outreach efforts, VT Markets India continues to accelerate its CSR impact following its September initiative supporting families affected by the Punjab floods through a partnership with Mission Deep Education Trust.

During the clean-up, VT Markets’ employees worked alongside Finanza volunteers to remove around large amount of debris, cleared accumulated waste, and restored cleaner stretches of the beach and surrounding areas. The collaboration not only revitalized a cherished public space but also demonstrated how coordinated action can inspire broader environmental awareness. This hands-on participation reaffirmed VT Markets’ belief that sustainable corporate progress must be reflected in meaningful engagement with the communities it serves.

As the day concluded, the clean-up drive stood as a testament to VT Markets’ broader vision: operating with integrity, driving sustainable action, and delivering support where it is needed most. Together with its recent flood-relief initiative in Punjab which provided 100 comprehensive relief kits, including essential food supplies and daily necessities to families in the hardest-hit areas, VT Markets continues to strengthen its role as a responsible and empathetic corporate citizen.

Through purposeful partnerships and consistent outreach, the company remains committed to uplifting communities, inspiring collective action, and contributing to a cleaner, more resilient future.

About VT Markets:

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The Euro (EUR) is currently falling behind most G10 currencies. This is mainly due to market sentiment and a lack of new factors to influence trading. Even with steady pricing from the European Central Bank (ECB) and upcoming euro area Consumer Price Index (CPI) data, the EUR/USD is approaching technical support. This suggests that trading will continue within a narrow range instead of showing a clear direction, according to Scotiabank strategists. The EUR has dropped by 0.3% against the USD, only performing slightly better than the CHF among G10 currencies. The market is quiet with few significant data releases. This week, the main focus is on euro area CPI figures, which are expected to show a 2.0% year-on-year increase. Comments from ECB policymakers are rare, and the short-term rates market does not predict any changes in policy.

Yield Spreads and Market Trends

Yield spreads are increasing, which offers support for the EUR, even though geopolitical issues are negatively affecting sentiment. This trend is reflected in the options market where risk reversals are adjusting with the EUR, making it cheaper to hedge against its strengthening. Since late June, the EUR has shown slight weakness within a flat range. The RSI has dipped below 50 as it moves toward the 50-day moving average at 1.1644, indicating a possible range between 1.1620 and 1.1720. Currently, the Euro is on the defensive, affected by market sentiment just as we await the next inflation report. Last week’s Eurozone CPI for December 2025 was 1.8%, below the 1.9% forecast, reinforcing the notion that price pressures are easing. This supports a neutral stance from the ECB and leaves the Euro without strong reasons to rise. This situation feels reminiscent of mid-2025 when geopolitical issues overshadowed positive fundamentals. At that time, yield spreads favored the Euro, but the currency did not gain. Today, while we see a similar disconnect likely due to renewed trade tensions between the EU and the UK, the spread between German and U.S. 2-year yields has narrowed a bit in favor of the Euro, yet it still struggles. Weak economic reports are compounding the problem. Germany’s factory orders for November 2025 fell by 0.5%, surprising many. Additionally, the Eurozone’s unemployment rate rose to 6.6%, a small but noticeable increase that dampens hopes for the region’s recovery. With the ECB not expected to signal any imminent policy changes, these data points give traders little incentive to buy the Euro aggressively.

Market Strategies for Low Volatility

With expectations that the Euro will remain within a range, traders should think about strategies that benefit from low volatility. Selling option strangles—selling an out-of-the-money call and put—can help traders collect premiums as long as EUR/USD stays within a specific range, which we see as approximately between 1.0650 and 1.0800 in the near term. However, the gap between prices and yield spreads poses a risk. If sentiment shifts, the Euro could suddenly rally. To prepare for this, traders might consider bull call spreads, which involve buying a call option and selling another at a higher strike price to finance the position. This approach limits risk while allowing for potential gains from any unexpected positive movement. The options market highlights this sluggishness, with implied volatility at multi-month lows, making options relatively inexpensive. This could create a chance to buy straddles, which seek profit from significant price movements in either direction. Such a strategy may be advantageous heading into the next ECB meeting, allowing for a potential breakout from the current tight range. Create your live VT Markets account and start trading now.

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EUR/USD recovered after disappointing US ISM Manufacturing PMI data weighed on the US Dollar. The Euro traded around 1.1706, bouncing back from a low of about 1.1659. The ISM Manufacturing PMI for December was 47.9, below the expected 48.3 and down from November’s 48.2. Although the Employment Index climbed slightly from 44 in November to 44.9 in December, it still indicates contraction.

US Dollar Weakens After Poor PMI Report

Initially, the US Dollar strengthened due to safe-haven demand after a US military operation in Venezuela. However, it dropped following the weak PMI data, with the US Dollar Index around 98.30. There is a noticeable policy divergence between the Fed, which may ease policies, and the ECB, expected to keep rates steady amidst stable growth. Eyes are now on key US and Eurozone data set to be released soon, including the US Nonfarm Payrolls report on Friday. The US Dollar is vital in global finance, making up over 88% of all foreign exchange trades. The Federal Reserve affects its value through monetary policies, adjusting interest rates and using quantitative easing or tightening when needed. We view the weak ISM data as a clear indicator of ongoing manufacturing struggles. This reading supports market predictions for two Federal Reserve rate cuts this year. The immediate rise in EUR/USD above 1.1700 is a direct reaction to this sentiment shift.

Policy Differences and Economic Outlook

The differing policies between the Fed and the European Central Bank are very significant, a trend we’ve seen develop during the tumult of 2025. While the US shows signs of weakening economic data, the Eurozone appears more resilient. This key difference should continue to favor the Euro over the US Dollar in the medium term. The recent ISM reading of 47.9 indicates 15 months of contraction in manufacturing activity over the last 16 months. On the other hand, recent Eurostat data revealed that inflation in the Euro area holds steady at 2.2%, supporting the ECB’s decision to maintain its current policies. The economic gap between the two regions is becoming more evident. With the high-impact Nonfarm Payrolls report due on Friday, we should think about buying short-dated EUR/USD call options. A strike price of around 1.1750 or 1.1800, expiring next week, might allow us to benefit from a weaker jobs report. This approach helps limit our downside risk if the number surprises positively. The situation in Venezuela may cause short-term volatility, but we believe that underlying economic data will have a stronger influence. A surprisingly strong jobs report poses the main risk to a long Euro position. Therefore, we should keep our position sizes small ahead of Friday’s release. We are also monitoring the US Dollar Index for a fall below 98.00, which would signal a broader downward trend for the dollar. Additionally, gold’s recent rise to over $4,400 an ounce supports the view of dollar weakness. These market signals reinforce our expectation of a higher EUR/USD exchange rate. Create your live VT Markets account and start trading now.

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The Canadian Dollar (CAD) has been following the trends of the US Dollar (USD) throughout the holiday season, with little domestic impact on this trend. Technical indicators suggest that the USD’s recent recovery may be slowing down, which could allow the CAD to strengthen if upcoming Canadian data, especially Friday’s employment report, shows economic strength. The USD/CAD rally seems to be losing momentum, although daily movements still reflect the overall trend of the USD. There hasn’t been much news affecting the CAD during the holidays, but the December S&P Global Manufacturing PMI rose slightly to 48.6. In the days ahead, key Canadian data like PMIs, trade numbers, and employment figures will be released, which could influence the CAD’s performance against the USD.

Better Than Expected Economic Data

Recent stronger economic data helped the CAD gain against the USD, and it might happen again if the upcoming employment report shows strength. Current intraday trading indicates that the USD’s rise since December 26th is facing challenges, needing to break above 1.3810 to keep its New Year momentum going. Current support levels for the USD are at 1.3750 and 1.3725. As we start 2026, the Canadian dollar is closely tracking the movements of the US dollar, a typical behavior during holiday trading when liquidity is low. As traders return, we are noticing signs that the USD’s recent strength may be fading. This could be a chance for the CAD, especially if domestic economic data remains positive. Recent economic figures support the case for a stronger CAD. Canada’s December 2025 job report showed a surprising gain of 45,000 jobs, far surpassing the forecast of 15,000. This indicates that Canada’s economy is potentially stronger than expected.

Current Data Divergence

A similar situation occurred in early 2025, when the USD/CAD pair was high at the start of the year. Strong Canadian data at that time changed the outlook, leading to a significant rise of the loonie against the greenback. This past experience suggests we should closely monitor the current data divergence. For traders dealing in derivatives, this environment indicates potential CAD strength, which would mean a drop in the USD/CAD pair. Buying put options on USD/CAD might be a wise strategy, as it provides downside exposure with limited risk. Implied volatility is still stabilizing after the holidays, making these options possibly attractively priced. However, the gap between the two economies is not drastic yet. The latest US job report, while slightly below expectations, still added a healthy 190,000 jobs, showing that the US economy is stable. Any unexpected rise in US inflation or hawkish comments from the Federal Reserve could quickly reverse the USD’s recent softness. From a technical view, the USD’s recent bounce seems to be having trouble attracting buyers. We’re monitoring critical levels for confirmation; if it falls decisively below 1.3500, it could indicate further declines for the US dollar. On the other hand, the USD would need to rise back above the 1.3620 mark to suggest its rally is on track to continue. Create your live VT Markets account and start trading now.

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The US Dollar (USD) is approaching its pre-Christmas highs, thanks to some safe-haven buying triggered by events in Venezuela. Asian currencies are gaining strength, which is helping to stabilize the markets as attention turns to important US economic data. Last week, the situation in Venezuela pushed the USD higher, but its long-term impact is still unclear. The DXY index is showing signs of stabilizing above its peak from December 19, right before key US data that could attract more trader interest.

Rising Asian Currencies

While political issues are capturing attention, the rise of Asian currencies, especially the Japanese Yen (JPY), may limit short-term gains for the USD and influence longer-term trends. The JPY’s performance signals a ‘safe haven’ mood in foreign exchange (FX) trading, along with strengthening Asian currencies like the Chinese Yuan (CNY). The US’s intentions regarding Venezuela are unclear, even though the country is rich in resources. Markets are reacting mixed; stock markets are mostly up, bonds are slightly firmer, and crude oil prices are steady. Gold prices have risen, but the effects of Maduro’s situation may lessen unless things get worse. Reflecting on the early 2025 market reaction, we see that a geopolitical shock temporarily boosted the US dollar. The DXY’s struggle to maintain gains above late 2024 highs was a key indicator. This serves as a reminder that economic data typically outweighs initial fear-driven reactions from isolated political events. For derivative traders, a lesson from that time was to sell short-dated call options or create bearish risk reversals to counter the initial dollar strength. The market’s calm response meant that implied volatility didn’t soar, making it a good time to position for a reversal. This strategy would have worked since attention quickly shifted to important US data that week.

Lessons From 2025

The subtle strength in Asian currencies then was a more critical, lasting signal. We now understand that this was vital; the yuan has significantly strengthened through 2025, recently trading around 6.85 against the dollar. This highlights the importance of monitoring underlying market trends that might contradict immediate safe-haven flows. Applying these insights today, we should keep our focus on the broader economic landscape rather than chasing after short-term headlines. With the December 2025 Consumer Price Index (CPI) report showing core inflation cooling to 2.8%, the Federal Reserve’s decisions are now the primary influences on the dollar. This fundamental pressure is likely to be more impactful than any situation that does not directly affect global supply chains. The VIX index is currently trading at a calm 14, indicating the market isn’t expecting major upheaval, similar to the subdued reaction seen in early 2025. This environment suggests that selling out-of-the-money options on currency pairs to collect premiums could be a good strategy. However, we must stay alert for any changes in economic data, such as the upcoming jobs report, that might alter market expectations. Create your live VT Markets account and start trading now.

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The AUD/USD pair is currently trading at around 0.6700, up 0.10%, following the release of US PMI data. The Australian Dollar is holding strong, though it is influenced by economic data from China, a key trading partner. China’s Services PMI dropped slightly to 52.0 in December, while the Manufacturing PMI rose to 50.1, suggesting minor growth. Expectations of tightening monetary policy are supporting the Aussie, with a focus on Australia’s upcoming CPI report expected on January 28.

The Effect of US Geopolitical and Economic Changes

In the US, the Dollar initially gained due to safe-haven demand amid tensions in Venezuela. However, this gain reversed when the ISM Manufacturing PMI fell to 47.9, showing a faster contraction in the US manufacturing sector. Markets are looking for two more Fed rate cuts in 2026, with interest over potential nominations for Fed Chair. Minutes from the Fed’s December meeting hinted at a pause in rate cuts if inflation decreases. The heat map shows percentage changes among major currencies. The Australian Dollar performed the best against the Canadian Dollar, rising by 0.36%. The map clarifies how the base and quote currencies impact these changes. The AUD/USD pair remains stable around 0.6700, showing strength despite mixed news from China. The US Dollar is weakening after recent manufacturing data indicated a deeper contraction. This contrast between a resilient Australian Dollar and a declining US Dollar is creating opportunities.

The Influence of Future Economic Indicators

We are closely observing Australia’s inflation data due on January 28, which could have significant effects. In 2025, the Reserve Bank of Australia faced challenges in reducing inflation from high levels. If the upcoming CPI data is higher than expected, it could prompt the RBA to increase its 4.35% cash rate in the February 3 meeting, which would be very positive for the Aussie. Conversely, the US economy is showing signs of cooling, and markets expect two interest rate cuts from the Federal Reserve this year. The US ISM Manufacturing PMI has been under 50 for 14 months, indicating ongoing contraction. This suggests that the Fed may ease policy moving forward. The growing gap between a potentially hawkish RBA and a dovish Fed supports a higher AUD/USD exchange rate. For traders, purchasing call options on the AUD/USD with a February expiration date could be a smart move. This strategy allows for potential profits if the Australian CPI data and RBA meeting lead to an upward shift. These options also limit risk if the data comes in lower than expected. However, it’s important to monitor any negative news from China, as Australia’s economy is closely linked to it. In 2025, China’s uneven recovery and a record youth unemployment rate over 21% posed challenges for global growth. A sudden slowdown in China could weaken the Australian dollar, regardless of the RBA’s actions. Create your live VT Markets account and start trading now.

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