The U.S. dollar continued its upward momentum on Tuesday, hitting new December highs against the yen as traders shifted their focus to upcoming inflation data and key central bank meetings. Meanwhile, the Australian and New Zealand dollars were supported by China’s shift to a pro-growth monetary policy, although gains were tempered by local economic uncertainties.
Dollar Gains Amid Fed Expectations
The USD/JPY rose to 151.55, its highest level since late November, reflecting strength in the greenback. Friday’s U.S. jobs report showed a surge in employment but also a rise in the unemployment rate to 4.2%, providing room for the Federal Reserve to implement a 25-basis-point rate cut at its December 18 meeting.
Markets are closely watching the U.S. Consumer Price Index (CPI) data on Wednesday for insights into the pace of Fed rate cuts in 2025. Persistent inflation remains a concern, potentially limiting the Fed’s easing cycle next year.
Australian and New Zealand Dollars Supported by China’s Policy Shift
The AUD/USD traded slightly lower at $0.6427 on Tuesday after Monday’s sharp 0.8% rebound, driven by optimism over China’s announcement of an “appropriately loose” monetary policy for 2025. The NZD/USD followed a similar trajectory, easing to $0.5846 after gaining 0.57% the previous session.
China’s pro-growth stance has lent support to commodity-linked currencies like the Aussie and Kiwi, which often serve as liquid proxies for the Chinese yuan. However, domestic concerns, such as Australia’s economic stagnation revealed in last week’s GDP data, remain a headwind.
Central Bank Meetings Take Center Stage
This week, major central bank decisions are expected to influence market movements:
- European Central Bank (ECB): A 25-basis-point rate cut is anticipated on Thursday, reflecting diverging monetary policy with the U.S.
- Bank of Canada (BoC) and Swiss National Bank (SNB): Both are expected to deliver significant rate cuts as they navigate slowing economic conditions.
- Reserve Bank of Australia (RBA): The RBA is likely to hold rates steady, but traders are watching for any shift in guidance that could bring forward expectations for a February rate cut.
The Canadian dollar remains under pressure, trading near a 4-1/2-year low at C$1.4177, while the U.S. dollar strengthened to 0.87905 Swiss franc.
Market Insights: Yen and Bitcoin in Focus
The yen continues to trade defensively, with the USD/JPY nearing its 200-day moving average of 151.99. Speculation is growing that the Bank of Japan may delay a rate hike until January, with policymakers likely to use Deputy Governor Himino’s scheduled speech next month to prepare the market for potential tightening.
Bitcoin retreated from its record high of $103,649 to trade at $97,009 as investors locked in profits after a stellar rally.
Looking Ahead
Key events this week include Wednesday’s U.S. CPI data, which could provide critical insights into the Fed’s 2025 policy path, and central bank decisions from the ECB, BoC, and SNB. With global monetary policies diverging, traders are bracing for heightened volatility in currency markets.
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