Market Update 10/12/2024

■ AUD/USD rose by about 1% overnight and is currently trading near 0.6450. The Australian dollar was boosted by news that Chinese authorities will increase policy stimulus next year. The Reserve Bank of Australia (RBA) is widely expected to keep its policy interest rate unchanged today (2:30 PM Sydney time). However, the RBA’s post-meeting statement will garner market reaction.

■ The USD is currently trading near 106.1 points, slightly higher than the same time yesterday. U.S. Treasury yields rose by 2-5 basis points across the curve. The S&P 500 fell by 0.6%. Following Friday’s non-farm payrolls report, market pricing for another 25 basis point rate cut by the Federal Reserve next week increased to about 85%.

■ AUD/CNH rose by 0.7% overnight. USD/CNH completely reversed yesterday’s gains and is currently trading near 7.2650. The CNH was boosted by reports that Chinese leaders will ramp up policy stimulus next year. Chinese policymakers will set monetary policy as “moderately loose” instead of “prudent,” and fiscal policy will be “more proactive.” The annual Central Economic Work Conference (CEWC) is reportedly scheduled for December 11-12. Key economic targets are unlikely to be revealed until the annual session of the National People’s Congress in March.

■ AUD/EUR also rose strongly overnight, up by about 0.8%, currently trading near 0.6110.

■ AUD/JPY was up by a large 1.7% in overnight trading. News of policy stimulus in China supported the AUD. Meanwhile, markets pushed out the timing of the next Bank of Japan (BoJ) interest rate increase, weighing on the JPY. The BoJ’s Deputy Governor will give a speech followed by a press conference on January 14, 2025, just before the BoJ’s January meeting. The timing of the speech has caused markets to shift expectations for another hike from the December 2024 meeting to January. Markets are currently pricing around a 70% chance of a 25bp hike in January.