A perky Australian dollar settles above 0.66
A perky Australian dollar is trading Monday afternoon at 0.6645 and at this point it looks like closing in on its 11th daily gain in 12, a feat not achieved for quite a few years. A confident AUD dollar looks forward to this Tuesday’s RBA meeting which is expected to strike a slightly more hawkish tone, a Fed rate cut on Wednesday night and local jobs data on Thursday.
A perky Australian dollar settles above 0.66
A perky Australian dollar is trading Monday afternoon at 0.6645 and at this point it looks like closing in on its 11th daily gain in 12, a feat not achieved for quite a few years. A confident AUD dollar looks forward to this Tuesday’s RBA meeting which is expected to strike a slightly more hawkish tone, a Fed rate cut on Wednesday night and local jobs data on Thursday.
Australian dollar breaks new ground on multiple crosses
AUD/USD posted a 1.5% gain last week, putting it atop the G20 leadership boards. The pair cleared a number of resistance points in the 0.6620-30 area late last week that could have been expected to at least temporarily thwart it. A range of AUD-crosses are also hitting new highs.
AUD/EUR finally broke above its painfully narrow 0.55-0.57 range late last week hitting 6-month highs just above 0.57.
AUD/JPY pushed through onto the 103.0 handle at 17-month highs. These gains come despite a relatively hawkish BoJ Gov. Ueda, convincing markets that a Dec. BoJ rate hike is very likely.
AUD/NZD is holding above 1.14 and was modestly higher last week. It trades at 1.1485 Monday afternoon. November’s hawkish RBNZ cut may have been the last in their cycle giving a solid boost to the Kiwi, but an even larger reappraisal of RBA expectations is playing out this side of the Tasman, keeping the cross relatively elevated.
A head spinning reset in RBA expectations
The Australian dollar has been a frustrating currency all year, posting multiple aborted rallies. But this time, the move higher is backed by a degree of yield spread support that hasn’t been seen for some years now, thanks to the dramatic turnaround in RBA expectations. As of Monday afternoon, the OIS RBA strip prices in a 50/50 chance of a 25bp hike by May 2026 and 35bp of rate hikes by the end of 2026. This is a head spinning turnaround given that 3 months ago, the OIS strip was pricing in about -50bps of rate cuts by Dec. 2026.
The economics forecasting community however remain more divided. Updated surveys show 3 among 24 economists calling for 1-2 hikes in 2026 while 6 are still calling for 1-3 cuts. The majority see RBA on hold for all of 2026.
Last week's local Q3 GDP figures came in weaker-than-expected at 0.4% qtr (vs exp. 0.7%). However, upward revisions to previous quarters meant that year end growth still reached 2.1% (the strongest since Q3 2023). The rebound in CAPEX admittedly didn't quite match the partials but even so, the data still portrays more a balanced growth story and a more robust private sector.
Just ahead of the Q3 GDP release, RBA Gov. Bullock appeared before a parliamentary committee and stoked market expectations saying, “…we’re alert to the possibility that there might be inflation pressures building, and the board would respond accordingly.”
The Nov. US ADP employment report was probably the most eye-catching number out of the US last week, showing -32k jobs were shed, locking in a rate cut later this week. Weakness was entirely driven by job shedding amongst small firms while larger firms continue to add jobs, underscoring the two-tiered k-shaped US growth story.
Oct. ISM PMI printed at 48.2, down from 48.7 signalling a further contraction in manufacturing activity.
The US PCE price index rose 0.3% m/m in Sep, and core PCE rose a benign 0.2%, both in line with prior month readings. Notably, real personal spending was flat and the previous month was revised lower, highlighting a softening trajectory for US consumption.
US equities finished the week higher amid increasing hopes of a Dec. Fed cut and subsiding AI/Tech stock valuation jitters. The S&P500 ticked up 0.3% over the last 5-days. US 10-year yields pushed higher over the week jumping 10bp to 4.13% as the Dec. FOMC being fully priced left little room for yields to fall further.
On commodities, copper pushed to new highs on Friday at $11705/t, gaining almost 4% w/w as global supply remains tight on account of US stockpiling. Spot iron ore continues to wash about a 101-108/t range for the time being, currently trading at 105.70. China’s housing sector remains depressed and steel demand remains soft.
This week includes the RBA, the Fed and Aussie jobs
The Australian dollar is looking forward to 3 big events this week; the RBA, FOMC and local Nov. jobs.
Gov. Bullock has plenty of reasons to strike a more hawkish tone in the wake of rebounding private sector demand and signs of more persistent price pressures.
A 25bp Fed rate cut on Wednesday night is assured, the only question is, how does it land on markets? The Fed’s previous two insurance cuts in Sept. and Oct. were cloaked with hawkish vibes, as officials remain divided on the balance of risks. We are sure to see plenty of dissent in both directions. This meeting also sees a fresh set of dot plot projections. As of their last projections in Sept., officials landed on a median expectation of 1 more cut in 2026.
Consensus is bracing itself for a trend like 20k gain in Nov. jobs following last month’s 42k gain. Consensus sees unemployment ticking higher to 4.4%.
Markets also will be watching out for progress on Russia-Ukraine ceasefire efforts and any insights on post-Thanksgiving US holiday sales.
Tuesday
- RBA Monetary Policy Meeting & Gov. Bullock Press Conf.
- Australia Nov NAB Business Conf.
- US Oct JOLTS Job Openings
Wednesday
- China Nov PPI, CPI
- Bank of Canada Monetary Policy Meeting
- FOMC Monetary Policy Meeting
Thursday
- Australia Nov Employment Data
Friday
- Fedspeak; Presidents Goolsbee, Hammack & Paulson.
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