Insights 
VT 
On October 29, the financial markets were calm as focus shifted to the Bank of Canada (BoC) and Federal Reserve (Fed) policy decisions. The US Dollar stabilised with the strongest performance against the British Pound. The Fed was expected to lower the policy rate by 25 basis points. Comments from Fed Chair Jerome Powell were anticipated for further insights on the decision.
US President Donald Trump mentioned the possibility of a trade deal with China and a finalised agreement with South Korea. The USD/CAD traded below 1.3950 after losing more than 0.3%, and the BoC was anticipated to cut interest rates by 25 basis points to 2.25%. Gold prices showed recovery after touching a low, influenced by escalating geopolitical tensions between Israel and Hamas.
Monetary Policy and Currency Impacts
The USD/JPY remained above 152.00, with Japan’s Chief Cabinet Secretary expecting BoJ’s prudent monetary policy. Australia’s Consumer Price Index rose 3.2% in the third quarter, above the expected 3%, boosting AUD/USD to its highest in three weeks. EUR/USD declined below 1.1650, and GBP/USD traded at its weakest since August. The Federal Reserve uses interest rate adjustments as a primary tool for influencing the US Dollar, holding eight policy meetings annually. Quantitative Easing and Tightening have opposing impacts on the US Dollar’s value.
The market has largely priced in the Federal Reserve’s 25 basis point rate cut, so we are watching Chairman Powell’s comments closely for the real trading signal. Any hint of a pause or further cuts will likely trigger significant moves in the US dollar. This setup is reminiscent of the market whiplash we saw in early 2024 when Fed expectations shifted rapidly.
This creates an opportunity to use options strategies that profit from a sharp price swing, such as a long straddle on currency ETFs. The CBOE Volatility Index (VIX) has been hovering around 17, a level that suggests the market may be underpricing the potential for a post-meeting surprise. Therefore, buying volatility through options could be a prudent move in the coming days.
Opportunities in the Currency Markets
The surprise 3.2% inflation print from Australia makes AUD/USD particularly interesting for bullish plays. We believe the Reserve Bank of Australia may be forced to adopt a more hawkish tone compared to the Fed. Buying AUD/USD call options with expirations in the next few weeks could capitalize on this monetary policy divergence.
With the Bank of Canada also expected to cut rates, the path for USD/CAD will depend on which central bank appears more committed to easing. Given that recent data showed Canadian unemployment holding steady at 5.7%, the BoC might signal a “one and done” approach. This could strengthen the Canadian dollar, making put options on USD/CAD an attractive trade.
Geopolitical tensions are once again providing a floor for gold, which is holding near the $4,000 level. We should consider this a critical support zone, especially with the Fed about to potentially weaken the dollar. Buying call spreads on gold futures can offer a cost-effective way to gain upside exposure if these tensions escalate further.
Sterling remains the weakest major currency against the dollar, trading at multi-month lows below 1.3250. This downtrend is likely to continue if the Fed does not deliver an overly dovish message. We can look to either sell GBP/USD futures or buy put options to ride this established bearish momentum.
