Manufacturing activity in Kansas rose from -3 to -2 in January, reflecting a modest improvement. This change indicates a slight recovery in the sector compared to the previous month.
In related economic updates, Australia’s S&P Global Manufacturing PMI increased to 52.4 in January. New Zealand saw its CPI inflation rise to 3.1% year-on-year in Q4, exceeding the expected 3.0%.
Currency Markets React
Currency markets also experienced variation as EUR/USD moved above 1.1740 when tariff threats were reduced. Concurrently, USD/JPY decreased due to a weaker US dollar, with attention on the Bank of Japan’s decision and Japan’s CPI data.
In commodity markets, gold reached a new record high of over $4,900. This surge happened even with a risk-on mood in the broader market.
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US Dollar Trends
We are seeing a clear weakness in the US dollar as geopolitical tensions with the EU ease. This is pushing pairs like the EUR/USD above 1.1740, a trend that appears set to continue. Derivative traders should consider strategies that benefit from a falling dollar, such as buying call options on the euro or other major currencies against the greenback.
The persistent US manufacturing weakness, with the Kansas Fed activity index at -2, remains a significant concern. This soft reading continues a trend we observed throughout 2025, where the national ISM Manufacturing PMI often struggled below the 50-point mark indicating contraction. This suggests caution is warranted on the strength of the US economic recovery, making protective put options on US equity indices a prudent hedge.
Gold hitting a record high over $4,900 per ounce, even in a risk-on environment, is a major signal that cannot be ignored. This is not typical behavior and points to deep-seated worries about inflation, especially after we saw US CPI average 3.4% in the last quarter of 2025. Traders should view gold not just as a safe haven but as a primary asset, using futures or long-dated call options to maintain exposure to its powerful momentum.
The divergence between a stronger Australian economy, with its manufacturing PMI at 52.4, and the sluggish US data creates opportunities in currency pairs. The Aussie dollar is likely to strengthen further against its US counterpart. We should look at derivative plays that capitalize on this, like buying AUD/USD call spreads to profit from a potential upward move while capping the initial cost.
