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– AUD/USD dropped to 0.6360, reversing yesterday’s gains driven by a hawkish RBA repricing. USD strength overshadowed optimistic signals from Chinese officials about countercyclical policy. Market pricing for a 25bp RBA rate cut in February is now a 50-50 chance after a solid labour force survey, though our team still anticipates easing to start in February.
– USD climbed toward 107pts as US Treasury yields rose 3-6bp. November PPI exceeded expectations (+0.4%/mth vs. 0.2% forecast), though key PCE deflator categories were favorable. Initial jobless claims slightly surpassed estimates (242k vs. 220k), and the odds of a 25bp FOMC cut next week remain high at 95%.
– AUD/EUR softened to 0.6070 after the ECB’s 25bp rate cut to 3.0%. The ECB signaled further cuts by removing its “sufficiently restrictive” language, with a 50bp cut fully priced for January. Growth forecasts were slightly downgraded, and inflation is expected to reach 2% by 2025.
– AUD/JPY fell to 97 ahead of the BoJ’s Q4 Tankan survey (10:50 am Sydney). Solid business sentiment and inflation expectations support ongoing BoJ normalization, but the next rate hike is now expected in January rather than next week.
– AUD/CNH dipped to 4.6300 as China’s CEWC highlighted a dovish fiscal and monetary stance, focusing on boosting consumption and investment in 2025. Policymakers plan to raise the budget deficit target and hinted at future rate and RRR cuts, consistent with recent Politburo messaging.
Mid-market rates.
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Chart of the day
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