Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
China devaluation report hits regional FX
The Australian and New Zealand dollars were sharply lower on Wednesday after a news report that China was considering moves to devalue the Chinese yuan.
The news report from Reuters indicated that China was considering the move in retaliation to potential new trade tariffs from president-elect Donald Trump.
The initial reaction was muted in the USD/CNH with the pair up only 0.3%.
However, bigger moves were seen across the region, with the AUD/USD falling to one-year lows and NZD/USD dropping to two-year lows, before later recovering.
USD extends gains despite rate cut bets
The US dollar continued to gain overnight, with the USD index up 0.3%, in its fourth-winning session since the USD index’s recovery from one-month lows commenced last week.
The USD gained despite an in-line result from US inflation with annual headline inflation at 2.7% and ex-food and energy at 3.3%.
Market pricing for a 25bps Federal Reserve rate cut next week climbed to 99% probability after the inflation number.
SNB, ECB decisions due
Looking forward, European rate decisions will be in focus.
The Swiss National Bank is seen as likely to cut rates by 25bps bringing the official rate to 0.75%. The expectation for Swiss rate cuts hasn’t been particularly negative for the CHF with the AUD/CHF at four-month lows and SGD/CHF recently at two-month lows.
Later, the European Central Bank decision is due, with the ECB also seen as likely to cut by 25bps to bring the deposit rate to 3.15%.
Aussie, kiwi at lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 9 – 14 December
