The US dollar remains stable against most G10 currencies, except for notable declines in the Australian and New Zealand dollars. A dovish shift in tone from the Reserve Bank of Australia (RBA) has increased expectations of a rate cut in early 2025, pressuring the Australian dollar. Emerging market currencies are generally weaker against the greenback. Equities are mixed, with rallies in Japan and China, but declines in Hong Kong and South Korea. Bond yields show varied movements, while commodities like gold and oil remain steady.
The RBA left its cash rate at 4.35% but signaled greater confidence in inflation nearing the 2%-3% target, alongside concerns about slow wage growth. Markets now price a ~60% chance of a rate cut in February 2025. China's Politburo reiterated its commitment to stimulus, but concrete impacts remain elusive. November's trade data showed a strong surplus of $97.4 billion, bolstered by increased exports to the US and Southeast Asia. Meanwhile, Japan's upcoming Tankan survey and PPI data are key focus areas. The Australian dollar dipped back toward its lows, while China's yuan showed resilience following supportive central bank measures.
Markets anticipate rate cuts from the European Central Bank (ECB) and Swiss National Bank (SNB). The EU is advancing negotiations on a Mercosur free-trade agreement and exploring a joint defense bond facility, potentially including non-EU members. The euro consolidates below $1.06, facing pressure from expiring options. Sterling traded in a narrow range after recovering from early weakness. Upcoming European macroeconomic reports could influence further movements.
US productivity growth has averaged 2% in recent years, underpinning economic outperformance. Tomorrow’s CPI release is expected to confirm market confidence in a Fed rate cut next week (~89% probability). Meanwhile, Canada’s higher unemployment rate boosts expectations for a 50-basis-point Bank of Canada cut. In Mexico, moderating inflation strengthens the case for Banxico rate reductions. The US dollar continues its ascent against the Canadian dollar and remains resilient against the Mexican peso. President Lula’s successful emergency surgery may have limited impact on Brazil’s real.