Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
USD higher as rate cut bets ease
The US dollar continued to keep climbing on Wednesday even as the minutes of the last Federal Reserve meeting showed that “most” participants voted for rate cut in December. However, the committee also became more worried about a resurgence in inflation.
The USD index gained 0.5% and remains near October 2022 highs.
Financial markets now only have one full 25bps Fed rate cut priced in for 2025 – and this is one key driver of the USD’s recent gains.
Overnight, the AUD/USD fell 0.3% and NZD/USD lost 0.5%.
In Asia, USD/SGD gained 0.3% and USD/CNH gained 0.2%.
NZD/USD momentum shifts higher despite weakness
While the kiwi was weaker overnight, momentum has recently shifted higher, with the relative strength index (RSI) now pointing higher as the pair finds support around 0.5600.
The kiwi might be supported by stronger commodity prices. With year-over-year improvements in the majority of industries, ANZ world commodity price index increased 0.2% month-over-month to finish the year 15% higher.
The cost of delivery was inconsistent worldwide. Due to port personnel on leave over the Lunar New Year time later this month, there may be some delays; the limited number of ships available may cause rates to rise.
For the positive momentum to continue, NZD/USD must break the 50-day EMA of 0.58010 key resistance next.
CNH to weaken as China CPI expected to flatline
Looking forward, China CPI is scheduled to be released at 12:30 AEDT today.
In light of consecutive drops in food prices, we anticipate that CPI inflation will further reduce to 0.0% year over year in December from 0.2% in November, with core prices probably remaining steady.
Given that the Chinese New Year national vacation falls earlier than normal (starting on January 28 this year instead of February 10 last year), food deflation most certainly persisted in December, defying typical seasonal tendencies.
The magnitude of fiscal policy and the degree of currency adjustment are the two main factors to watch in 2025 given the likelihood of further tariffs and higher US rates.
USD/CNH is at 16-month highs, and looks set to continue its upward trend, as the 50-day EMA has crossed its 200-day EMA from below since the beginning December 2024. Next key resistance will be at 7.3699.
USD higher after Fed minutes
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 6 – 11 January
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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.
