Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US CPI next risk for USD buyers
The US dollar was higher for a third day as it rebounded from last week’s one-month lows as markets awaited tonight’s all-important US inflation report.
The Aussie and kiwi led losses after yesterday’s RBA decision. The AUD/USD fell 1.0% while NZD/USD lost 1.1%.
The USD/SGD gained 0.1% while the USD/CNH again bucked the trend and again extended losses from the one-year highs seen last week.
November headline inflation is expected to rise from 2.6% to 2.7% while the core reading is forecast to stay steady at 3.3% (both in annual terms).
A higher number remains the risk with an 87% chance of a rate cut next week from the Federal Reserve – a surprise stronger CPI number could see those expectations quickly reverse and the USD might extend recent gains.
Aussie lower as RBA shifts stance
The AUD/USD was lower yesterday after the Reserve Bank of Australia made some significant shifts in its policy statement, most notably saying the central bank is “gaining some confidence that inflation is moving sustainably towards target”.
The AUD/USD plunged back below 0.6400 and was trading within 15 pips of the 2024 lows.
Looking forward, the Australian unemployment rate will be announced this Thursday 11:30 AEDT.
In November, we project a 30,000 increase in employment along with unchanged unemployment and participation rates of 4.1% and 67.1%, respectively.
November often sees strong employment growth, which might be related to hiring and pre-Christmas sales choices that ABS seasonal adjustment measures could not completely account for.
With a decreased rate of net immigration and Q3 GDP statistics showing a fourth consecutive quarter of sub-trend growth, we expect the trend in employment growth to slow down in the upcoming months.
AUD/USD demonstrated weak price action post the RBA decision with next level support level at 0.6250 and then 0.6170.
ECB rate decision shapes euro momentum
With Bank of Canada tonight and Swiss National Bank on Thursday, the European Central Bank closes out the central bank meetings for the week on Thursday night.
On December 12, the ECB looks likely to reduce the depo rate by 25 basis points to 3%.
The majority of the statistics only support a 25-basis point rate cut: activity figures were stronger than polls indicated, HICP inflation increased little in October and November, and Q3 pay growth soared.
We believe the ECB will continue to emphasise data reliance on the future course of rates while softening the language in its opening statement on keeping rates tight.
Following the completion of the falling wedge on November 26, the outlook is more positive for the EUR/USD with next key resistance is at 50-day EMA of 1.0696.
Aussie hit after RBA
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 9 – 14 December
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
