Australian dollar surged after positive employment data, while the euro remained stable ahead of the ECB’s policy decision. The U.S. dollar maintained gains, supported by rising Treasury yields. The CPI showed a significant increase, prompting expectations of a Fed rate cut. The Dollar Index slightly declined, with the yen weakening as rate hike prospects dimmed. Meanwhile, the Australian and kiwi dollars both rebounded, and market focus shifted to potential monetary policy changes from China and the Swiss National Bank.
Australian Dollar Rises on Employment Data
The Australian dollar experienced a notable increase following reports that employment figures in Australia surpassed expectations. In contrast, the euro maintained a steady position as market participants awaited the European Central Bank’s (ECB) monetary policy announcement later today. The U.S. dollar, also known as the greenback, retained much of its previous day’s gains, supported by a rise in U.S. Treasury yields on Wednesday. This was influenced by the Treasury Department’s sale of long-term stocks and data revealing an uptick in the U.S. budget deficit.
Market Insights Ahead of Fed’s Decision
The Consumer Price Index (CPI) for November indicated a 0.3% increase, marking the most significant rise since April, following four consecutive months of a 0.2% increase. Current market analysis suggests a staggering 98.6% chance that the Federal Reserve will implement a 25 basis point rate cut during its upcoming meeting on December 17 and 18, a substantial rise from 78.1% a week prior, according to the CME’s FedWatch tool. Investors are also keenly awaiting additional U.S. inflation data with the upcoming release of the Producer Price Index (PPI). Carol Kong, a currency strategist at the Commonwealth Bank of Australia, noted that unless there are ‘strong increases’ in the categories that influence personal consumption expenditures, the CPI data for November should facilitate a rate cut by the Fed. However, the future trajectory of Fed rates post-December remains uncertain. Ms. Kong remarked that the dollar is likely to stay strong as concerns regarding the slowdown in disinflation bolster current market expectations for a gradual approach to rate cuts from the FOMC next year.
As for the Dollar Index, which evaluates the greenback against six other major currencies, it experienced a minor decline of 0.07%, settling at 106.53, just shy of a two-week peak of 106.81 achieved on Wednesday. The dollar also dipped 0.21% against the yen, standing at 152.14 after reaching a high of 152.845 yen, its strongest level since November 27. Market sentiments have shifted, reducing expectations for a potential rate hike in December from the Bank of Japan after reports suggested the Japanese central bank perceives ‘little cost’ in taking a wait-and-see approach.
Traders are also closely monitoring developments from the Central Economic Conference in China, which is taking place behind closed doors this week. A Reuters report indicated that China is contemplating allowing a weaker currency next year, putting the yuan under pressure. On Monday, the Politburo committed to a ‘sufficiently flexible’ monetary policy aimed at stimulating economic growth. The offshore yuan was last recorded at 7.2735 per dollar, up approximately 0.10%.
The Australian dollar was recently up 0.6% at $0.64075, rebounding after a decline to $0.63370 on Wednesday, marking its lowest point since November 2023. Meanwhile, the kiwi rose by 0.29% to $0.58010 after touching its lowest level since November 2022 at $0.57625 on Wednesday. The euro traded at $1.0506, reflecting a 0.09% increase as the ECB’s monetary policy meeting approaches, where a quarter-point cut is broadly anticipated. Market attention will focus on any indications regarding the central bank’s future rate strategies. Additionally, the British pound gained 0.14% to $1.2768, while the Swiss franc traded at 0.88315 per dollar, as investors evaluated the possibility of a half-point rate cut from the Swiss National Bank on Thursday. The dollar reached 1.41435 Canadian dollars following the Bank of Canada’s decision to lower its key rate by 50 basis points to 3.25% on Wednesday to combat slowing economic growth.