Aussie limps into year’s end below 0.6400
AUD/USD starts a busy final full week of trading for the year still languishing, below 0.6400. The news flow out of Australia and China last week played in both directions for AUD/USD, but ultimately left it with weaker foundations. The main focus this week is offshore, in particular interest rate decisions from the Fed, the BoJ and the BoE.
This will be last our AUD update for the year, so we will take this opportunity to say thanks for your support in 2024 and pass on our best wishes for a well-earned Christmas and New Year break. We will return in mid-January 2025.
Aussie limps into year’s end below 0.6400
AUD/USD starts a busy final full week of trading for the year still languishing, below 0.6400, a decline of almost 8% for the quarter.
Economic and policy developments in China and Australia are of course always on AUD’s radar, but they took a backseat for a few weeks, with markets preoccupied by the implications of a second Trump presidency.
However, China and Australia returned as key focal points for AUD last week. The news flow out of Australia and China played to both directions for AUD/USD, but ultimately left the currency with weaker foundations.
On the plus side, China’s Politburo vowed to boost growth with more stimulus measures. A bolder fiscal push is clearly on the cards. Notably, the Politburo pledged a “moderately loose” stance on monetary policy, the first such shift in their language in over 13 years. AUD was still struggling in the wake of a soft Q3 GDP from the previous week. The Politburo announcement gave AUD/USD a much needed shot in the arm, lifting it almost US1 cent to 0.6470+, a gain of +1.4%.
But the following day, a noteworthy shift in RBA communication saw AUD/USD give back all of its previous day’s gains. The RBA struck an more dovish tone, signaling confidence that it has hitherto lacked around a sustained easing of wage and price pressures (though some concern lingers).
Notably, the Board finally dropped the increasingly redundant guidance that, "..it is not ruling anything in or out” – language that has been used since March 2024. The RBA also dropped the language around remaining “vigilant” to inflation risks. In her press conference, Governor Bullock could not entirely rule out a scenario that sees rates being cut as soon as their next meeting 18 February. By mid-last week AUD/USD was testing 0.6337, 13 month+ lows.
A very solid local November jobs print on Thursday, 53k+ full time jobs and a 0.2ppt fall in the unemployment rate to 3.9%, helped stabilise AUD/USD, but only briefly. The caution is that shifting seasonal patterns may have pulled jobs from December into November.
The read out from China’s post-Politburo Central Economic Work Conference (CEWC) late last week underwhelmed inflated expectations too. Their pledges matched the tone of one of the earlier Politburo, but lacked concrete details, leaving markets guessing until the National People’s Congress in March 2025.
Newswires also reported that Beijing is considering the merits of guiding and accommodating a weaker CNY, in response to tariff risks. As a key anchor a weaker CNY would weigh on regional currencies including AUD.
All told a volatile mix of local and China news last week produced swings in both directions for AUD/USD, but ultimately it is still languishing, below 0.6400.
Other currencies are tracking to the weaker side too, making it a more mixed picture for AUD-crosses. The Bank of Canada and the Swiss National Bank cut rates by 50bp last week, the ECB cut by 25bp, while newswires reported that BoJ officials see little cost to keeping policy steady this week, giving them time to assess domestic wage/price risks and a Trump presidency. AUD/JPY has firmed from around 96.0 a week ago to above 98.00 early this week.
The main focus this week is offshore, in particular interest rate decisions from the Fed, the BoJ and the BoE.
The Fed is widely tipped to deliver a “hawkish” 25bp rate cut, signalling that it is going to be more cautious on cuts in 2025 amid lingering inflation risks and still solid growth. The median dot-plot projection is expected to be trimmed to showed 3 cuts in 2025, from 4.
The BoJ is a lot less clear cut. A majority of forecasters expect the BoJ to stay on hold, but a handful see a rate hike. Growth, wages and inflation broadly continue to evolve encouragingly, in line with BoJ projections, but the BoJ might be inclined to wait for further insights into how next year’s wage negotiations might unfold and there is substantial uncertainty about what a Trump presidency may mean for Japan’s economy.
The UK will be in the news this week too, with the BoE, jobs and inflation data on tap.
Tuesday
UK Oct earnings and employment
US Nov retail sales
Wednesday
-Eurozone final Nov CPI
-UK Nov CPI
-US FOMC rate decision, Chair Powell press conference & Summary Economic Projections.
Thursday
-BoJ Policy meeting
-UK BoE Monetary Policy meeting
Friday
-Australia Nov private sector credit
-Japan Nov national CPI
-US Nov PCE price deflators
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