Insights 
VT 
Australia’s National Australia Bank’s business conditions index increased from 7 to 8 in September. This marks a progression in business conditions as recorded by the bank for that month.
The AUD/JPY exchange rate dropped to roughly 98.50. This is due to the Reserve Bank of Australia’s cautious stance concerning potential future rate cuts.
Crude Oil Price Increase
The price of West Texas Intermediate (WTI) crude oil rose to nearly $59.50. The increase is attributed to easing tensions between the US and China.
Gold has continued its upward trend, reaching fresh all-time highs. The demand remains strong as US-China trade risks persist and ahead of a speech by US Federal Reserve Chair Jerome Powell.
Australian business conditions have improved, with the NAB index climbing to 8 in September. Despite this strength, the Reserve Bank of Australia remains cautious, which has capped the Aussie dollar’s gains near 98.50 against the yen. We see this as a chance to buy AUD call options, betting that upcoming inflation data will force a more hawkish tone from the RBA.
Market Volatility
The broader market is sending conflicting messages, with US stocks rallying while gold is hitting all-time highs above the $2,450 peak we saw back in May 2024. At the same time, WTI crude oil is languishing below $60 a barrel, a level that points toward a significant global slowdown, reminiscent of the weak manufacturing PMI data we saw through much of 2024. This environment of uncertainty creates opportunities for those trading in volatility.
This divergence between surging gold and weak oil presents a clear opportunity for a pairs trade. We are considering going long on gold futures while simultaneously shorting WTI futures. This strategy is designed to profit from continued economic uncertainty, where safe havens rise and industrial commodities fall.
The tension between equity optimism and commodity fear suggests underlying market volatility is underpriced. The CBOE Volatility Index (VIX) is currently trading near 14, which is historically low given the circumstances, making VIX call options an attractive hedge against a potential market shock. Upcoming speeches from the Federal Reserve will be critical, as any hint of a dovish policy shift to combat economic weakness could further weaken the dollar.
