US Inflation Data Meets Expectations
US inflation data has been released, showing core CPI increasing by 2.7% year-on-year and 0.3% month-on-month. While this figure does not significantly alter expectations for a Federal Reserve rate cut next week, the prevailing consensus suggests that a pause is anticipated in January. The inflation data bolstered the US dollar, allowing it to appreciate for the fourth consecutive day, pushing USD/JPY to a two-week high.
Record Highs for Nasdaq 100
The Nasdaq 100 has reached new heights, driven by strong performances from major players like Nvidia, Alphabet, and Tesla. Meanwhile, the S&P 500 managed to break its two-day slump, climbing close to its record high, albeit futures trading was just below the day's average range. In contrast, Dow Jones futures have dipped for the fifth day in a row, leading to a mixed atmosphere on Wall Street, which could limit gains on the ASX 200, although a bounce appears imminent.
Bank of Canada Makes a Key Decision
In a significant move, the Bank of Canada has lowered its interest rates by 50 basis points, bringing them down to 3.25%. This decision comes amidst signs of lower inflation at 2% and an economy showing signs of excess capacity. The BOC has indicated a shift back to a per-meeting approach for rate decisions, keeping future moves data-dependent.
Beijing Explores Yuan Weakness
Beijing has hinted at considering further weakness of the yuan in response to potential tariff risks posed by diplomatic tensions. Although this announcement may seem unnecessary given the current trajectory of the currency, it suggests a readiness to adapt. After a temporary increase of 0.7% in USD/CNH from Wednesday’s low, AUD/USD is now at a 13-month low as it closely mirrors the movement of the yuan. An increase in USD/CNH means downward pressure on the Australian dollar.
AUD/USD and USD/CNH Technical Analysis
Recently, USD/CNH formed a bullish engulfing pattern, influenced by comments from Beijing and the strength of the US dollar. Despite AUD/USD breaking the 2022 trendline, it appears to be trying to reclaim it. A daily close above the April and August lows has resulted in a doji formation, indicating a possible bounce. However, USD/CNH's rise could exert further pressure on AUD/USD if it reaches the 7.3 level, risking a notable drop for the Australian dollar. Upcoming Australian employment figures could influence market sentiment as these reports often surprise positively, potentially offering some support to the Aussie. Nevertheless, close monitoring of the yuan is crucial; any further weakening could add to AUD/USD's challenges.
ASX 200 Technical Outlook
After a week of pullbacks from its recent record high, the ASX 200 is now working to maintain its position above the weekly Volume Point of Control and monthly pivot point. With two out of the three major Wall Street indices showing strength, the ASX may continue its recovery. However, it’s worth noting that the Christmas rally typically begins around December 20th, which could lead to some volatility before then. For now, bullish traders could look to capitalize on dips within the overnight trading range, targeting last week’s Value Area Low or the weekly Volume Point of Control.
Key Economic Events to Watch
Recent weak Q3 growth statistics have paved the way for a dovish stance from the Reserve Bank of Australia, leading to markets pricing in three potential rate cuts in 2025. A slightly softer employment report could reinforce these expectations, pushing the forecast for the first rate cut ahead from April to Q1. Predictions for unemployment are set to increase to 4.2% from 4.1%, with 26,000 jobs expected to be added and a stable participation rate at a record 67.1%. However, it’s important to remember that Australia’s employment reports often exceed expectations, so a rise in unemployment, coupled with lower participation rates, would be necessary for a significantly depreciated AUD/USD towards 63 cents.
- 08:45 – NZ Retail Sales
- 09:15 – RBA Assistant Governor Jones speaks
- 10:50 – JP Foreign Bond and Stock Purchases
- 11:30 – Australian Employment Figures
-- Crafted by a financial analyst
