Greenback higher ahead of Fed
The US dollar was higher overnight as markets await tonight’s all-important US Federal Reserve decision.
Market pricing sees a 90% chance of a rate cut to a new range between 3.50% and 3.75%. The Fed decision is due on Thursday at 6:00 am AEDT.
The stronger US dollar was most notable in Asia. The USD/JPY gained 0.6%. The USD/CNH fell 0.1%, while the USD/SGD was flat.
The euro and GBP both weakened.
The Aussie bucked the trend, with the AUD/USD up 0.3% after yesterday’s Reserve Bank of Australia decision. The NZD/USD gained 0.1%. The Bank of Canada also meets tonight, with the BoC expected to hold.
Stronger USD the risk as markets go “all in” on cuts
A stronger US dollar is the risk tonight, with three rate cuts priced in between now and the end of 2026 (including tonight’s likely cut). Will the Fed’s commentary meet market expectations?
Global markets have clearly tilted toward pricing in further Fed easing. The bar is high to shift expectations for further cuts: a full cut is priced in for tonight, Trump ally Kevin Hassett is viewed as the likely next Fed president, and an assumed terminal rate near 3% reinforces the entrenched dovish bias.
Yet this stance looks increasingly fragile against a still-uncertain data backdrop, elevated inflation, and the possibility of a pause in the cutting cycle early in 2026.
The Fed is now much closer to neutral, and with dissenters expected to speak up today (at least two anticipated), holding off on further cuts until the data picture becomes clearer may seem reasonable. If so, the USD might extend the recovery seen since its September bottom.
Aussie boosted as RBA hike risks grow
The Australian dollar led markets higher overnight following the December Reserve Bank of Australia decision.
Markets have scrapped expectations for further cuts as inflation heats up. Annual headline inflation climbed from 3.6% in September to 3.8% in October – more than double the 1.8% seen in June. Traders now see the next likely move as a hike by August next year.
The AUD/USD moved back towards the top end of its recent trading range, with the pair currently defined by support at 0.6400 and resistance at 0.6700. A break of 0.6700 sets up a potential move to 0.7000.
Across markets, the AUD/GBP climbed to nine-month highs near 0.5000. The GBP has lost 7.2% against the Aussie since its mid-April highs, and the pair is now in a clear uptrend with key moving averages pointing higher.
Similarly, the AUD/EUR has risen to six-month highs.
The Aussie’s recent strength has seen the AUD/CAD climb to 15-month highs, with the pair now up 8.6% since the April lows.
Aussie extends gains across markets
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 8 – 12 Dec
