AUD Faces CPI Test as USD Strength Persists

AUD

The Australian Dollar opens mixed, gaining against major currencies as domestic economic signals continue to improve. The main headwinds for the AUD stem from the broader, uneven global market sentiment rather than Australia’s fundamentals.
The ASX 200 declined 1.6% to 8417, weighed down by the materials and energy sectors which fell 4% and 3.1% respectively. Regionally, Japan’s October core CPI came in at 3.0% year-on-year, meeting expectations, which pressured USD/JPY down to lows of 156.20 amid speculation of possible intervention in the foreign exchange market. The key data point this week for the Aussie Dollar will be on Wednesday, with CPI data to be released monthly for the first time.

USD

The AUD/USD opens slightly up at 0.6459. Last week’s market action was shaped by a combination of Federal Reserve communications, global economic data releases, and ongoing geopolitical developments supported by growing market expectations of a Federal Reserve rate cut in December. A strong session on Wall St. to round out the week as markets increased the odds of a December rate cut saw the Dow Jones close +1.1%, S&P +1% and Nasdaq +0.9%. U.S. 10-year yields were steady at 4.06%, while Brent Crude fell -1.4% to $62.50 a barrel. Key economic releases to watch this week include the Producer Price Index (PPI) and retail sales data, which will offer further clues on inflationary pressures and consumer spending. Market focus remains on the Fed’s December meeting, where expectations for a rate cut have firmed, possibly influencing dollar dynamics. 

EUR

The AUD/EUR pair opens up at 0.5609. Eurozone equities closed in the red with the DAX at -0.8% and CAC flat at 0.0%. The pair initially dipped following comments from ECB President Lagarde on the need for continued policy adjustment and the positive impact of recent fiscal packages, but the pair has since stabilized. Market participants remain cautious awaiting further ECB guidance and economic data.  

GBP

The AUD/GBP pair is essentially flat, trading at 0.4930. UK 10-year government bond yields have fallen to 4.52%, while the FTSE 100 index recorded a slight gain of 0.1%. The market’s attention is turning to the UK government’s budget announcement scheduled for Wednesday. The budget is expected to focus on fiscal tightening measures aimed at addressing the country’s economic challenges and restoring confidence in the gilt market.  

NZD

The AUD/NZD pair is slightly down at 1.1515. All eyes are on the Reserve Bank of New Zealand’s (RBNZ) upcoming policy decision, where a 25 basis point OCR cut is widely anticipated. The RBNZ is also expected to provide updated growth forecasts, with potential downward revisions following weaker recent economic data.