The USD has gained strength, reversing losses incurred after the Jackson Hole event, especially against the EURUSD. The overall decline seen previously in the dollar’s value has been largely recovered.
Australia’s July CPI rose to 2.8% year-on-year, with monthly prices increasing by 0.9%. Goods inflation reached 2.3% annually, while the trimmed mean core measure jumped to 2.7%. This briefly boosted the AUDUSD to 0.6503, before it fell back to session lows. Upcoming August data will offer more insights into services inflation, crucial for the Reserve Bank of Australia’s meeting in September.
US Mortgage Market Update
In the U.S., MBA mortgage applications dropped by 0.5% for the week ending August 22. The market index fell to 275.8, and refinancings decreased to 894.1. Meanwhile, the purchase index increased to 163.8. The average 30-year fixed mortgage rate marginally increased to 6.69%.
Today’s U.S. and Canada schedules are light, with attention on price actions and anticipated earnings. Nvidia’s earnings report could heavily influence, given its importance in AI and semiconductors.
U.S. stock indices are expected to open moderately higher, with Dow futures +32 points, NASDAQ +26 points, and S&P +6.81 points. The yield curve has steepened, with the 2 – 30 year spread at 128 basis points, levels last observed in early January 2022.
With the US dollar regaining momentum, we see the Dollar Index (DXY) pushing above the 106.50 level, its highest point in nearly a year. This unwinding of the recent Jackson Hole-driven selloff suggests a powerful trend is reasserting itself. Derivative traders should consider strategies that profit from continued dollar strength, such as buying call options on the USD or put options against the euro.
Developments in the US Yield Curve
The US yield curve is telling a significant story as it steepens, with the gap between 2-year and 30-year yields now at 128 basis points, a level we have not seen since early 2022. This move away from the deep inversion of 2023 indicates the bond market is pricing in stronger future growth and inflation. We should look at trades that benefit from rising long-term rates, like buying puts on long-duration Treasury bond futures.
Tonight’s Nvidia earnings report is the most important near-term event for the market. Given the stock’s history of massive price swings after its 2024 earnings calls, where it often moved over 10% in a single day, implied volatility on weekly options is extremely high. A long straddle or strangle could be an effective way to play the expected move without betting on the direction.
Uncertainty surrounding the Federal Reserve is increasing due to political headlines. Reports of a potential lawsuit against Governor Cook and a broader review of the regional Fed banks are creating doubt about the future path of monetary policy. This environment makes buying volatility attractive, so we are watching VIX futures for late 2025, which are already pricing a premium over the spot index, currently hovering near 18.
Despite a surprisingly hot inflation report from Australia, the AUD’s inability to hold its gains against the dollar is telling. This reinforces the idea that the strong US dollar is the dominant global macro theme right now. With another key Australian inflation report due on September 24 just before the next RBA meeting, we anticipate more opportunities to position for AUD weakness against the dollar.
