Insights 
VT 
Australia’s National Australia Bank’s business confidence rose to 7 in the third quarter, compared to -1 in the previous quarter. This shift suggests a change in sentiment among businesses despite ongoing economic challenges.
The Australian Bureau of Statistics is anticipated to report an increase of 17,000 new jobs for September. However, the unemployment rate rose to 4.5%, surpassing the forecasted 4.3%, suggesting a cooling labour market.
Conflicting Economic Signals
We are seeing conflicting signals from the Australian economy this week. While the NAB survey showed robust business confidence, the jump in the unemployment rate to 4.5% is a significant sign of a weakening labor market. This divergence creates uncertainty, which often leads to opportunities in derivatives.
This new unemployment figure puts the brakes on any hawkish sentiment from the Reserve Bank of Australia. With the cash rate holding at 4.35% for nearly a year now and Q3 inflation still firm at 3.4%, the RBA was in a difficult position. This labor market weakness makes another rate hike highly improbable and shifts the focus toward the timing of potential rate cuts in 2026.
For foreign exchange traders, this strengthens the case for a weaker Australian dollar. We anticipate the AUD/USD, currently near 0.6550, to face downward pressure as the market prices in a more dovish RBA. Buying AUD put options with expirations in December 2025 or January 2026 could be an effective strategy to position for this, similar to the currency’s decline we observed when the labor market first showed signs of cooling back in late 2023.
Outlook for Equity Markets
In the equity markets, the outlook is less clear, suggesting a strategy focused on volatility rather than direction. A slowing economy is negative for corporate earnings, but the prospect of future interest rate cuts is supportive for stock valuations. Therefore, we expect increased price swings in the ASX 200, making long volatility positions, such as buying straddles on the index, an appealing trade for the coming weeks.
The strong business confidence reading remains the key risk to this bearish outlook. If businesses translate that optimism into investment and hiring, the labor market weakness could be temporary. This suggests keeping derivative positions to shorter-term expiries to capture the immediate reaction to this conflicting data.
