The US and China have agreed to prolong their bilateral trade truce beyond its planned expiry in November, Bloomberg reported. The extension follows an unscheduled meeting in Washington between US Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng. The arrangement, referred to as the “Busan Agreement”, had been due to end on 10 November but will now run until 10 January, with the possibility of either a broader economic package by that date or a further rollover of the existing terms.
Chinese President Xi Jinping and Peng Liyuan arrived at Joint Base Andrews outside Washington shortly before 6 p.m. local time on Wednesday. In markets, AUD/USD was down 0.06% on the day at 0.7034. Separately, the US-China trade war began in early 2018 under President Donald Trump and led to the Phase One deal in January 2020, after which tariffs largely remained. A renewed escalation followed Trump’s return as the 47th US President: during the 2024 campaign he pledged 60% tariffs on China, which were imposed on 20 January 2025.
Impact On Currency And Derivative Markets
The unexpected extension of the US-China trade truce until January 10, 2027, gives us a temporary breathing room that we must exploit. We expect short-term implied volatility in trade-sensitive currency pairs like AUD/USD and USD/CNH to decline over the next few weeks. Derivative traders should look to sell short-dated options to capture this premium decay while the immediate threat of new tariffs is put on ice.
While short-term markets are calming down, we must prepare for a sharp volatility spike as the new January deadline approaches. Historical data from previous trade disputes shows that USD/CNH implied volatility often surges by 20% to 30% when negotiations stall. We recommend buying longer-dated calendar spreads or back-month call options on volatility indexes to hedge against a sudden breakdown in talks.
Effects On The Australian Dollar And Equity Derivatives
The Australian Dollar, currently trading near 0.7034, remains highly sensitive to Chinese economic health and global trade flows. With China’s manufacturing PMI stabilizing around 50.4 in recent months, we see a temporary window of stability for commodity-linked currencies. Derivative traders should consider structuring risk reversals on the AUD to benefit from a modest relief rally over the next month.
In the equity derivatives space, this temporary relief will likely boost multinational companies heavily reliant on Chinese supply chains. We can target call options on tech and automotive sectors which took a heavy hit when the 60% tariff threat was first introduced. However, we should keep position sizes manageable because any sudden shift in political rhetoric could quickly reverse these gains.
