Risk-Off Attitude Returns As AI Fears Resurface
AUD
The Aussie Dollar opens lower against the majors despite the Mid-Year economic and fiscal outlook showing the largest nominal budget improvement on record, with back‑to‑back surpluses in the first two years and a much smaller deficit in our third year. The deficit for 2025-26 is now expected to be slightly narrower at A$36.8 billion, supported by stronger-than-anticipated tax revenues, with no adjustments to planned bond issuance. Asian equities were higher for the first time this week, with the Nikkei +0.3%, Hang Seng +0.9% and Shenzhen +1.8%. The ASX struggled again -0.2% as healthcare and energy weighed, -1.9% and -1.4% respectfully. Commodities also closed mixed with Gold -0.1%, Silver -0.2%, Iron Ore 0.5%, and Copper +1.1%. It will be a quiet week for Aussie data with no major releases however today we have MI Inflation Expectations later at 11am with no forecasts.
USD
AUDUSD opens lower this morning at 0.66 after Fed Wallers commentary stating there is no rush to cut interest rates given the current outlook of the jobs market being very soft, and current payroll showing no growth. Wall St on the other hand closed lower with the Nasdaq trading -1.5%, the S&P 500 -1%, and the Dow Jones -.4%. There will be a myriad of US data releases overnight starting with their CPI y/y expected to increase from 3.0% to 3.1%, followed by Unemployment Claims expected to decrease from 236K to 224K, and lasty Philly Fed Manufacturing Index with forecasts pointing to a big jump from -1.7 to 2.5.
EUR
AUDEUR opens lower this morning at 0.5626 despite German ifo Business Climate coming through lower at 87.6 from 88.2. Eurozone equities closed in the red with the DAX and CAC down -0.5%, and -0.2% respectively. In Europe, the ECB is widely expected to leave its policy rate (deposit facility rate) at 2% overnight. Market forecasts suggest an extended pause in ECB policy through 2026, as a number of Governing Council members have indicated they see current policy settings as appropriate (with a high hurdle for further rate cuts). Focus will likely be on the ECB’s revised forecasts, with ECB President Lagarde recently flagging that growth forecasts are likely to be revised up. ECB inflation forecasts may also be revised up a little, reflecting higher than expected recent outcomes, but remain close to the 2% target in 2026 and 2027.
GBP
AUDGBP opens lower this morning at 0.4936 despite UK CPI y/y coming through lower than forecast at 3.2% from forecasts of 3.5%. UK equities however closed in the green with the FTSE up 0.9%. In the UK, the MPC’s policy rate decision is due out tonight. Market forecasts think that the MPC will cut the policy rate by 25bps from 4% to 3.75% given evidence of inflation starting to cool a little in October and recent activity data weakening. However, markets forecast the call will be much closer than implied by current market pricing (almost 90% chance of a cut), with the deciding vote coming down to Governor Bailey.
NZD
AUDNZD opens lower this morning at 1.1440 after NZD Westpac Consumer Confidence index rose 5.6 ppts in December, taking it to a level of 96.5. While that’s still a little below long-run averages, this is the highest level of confidence that we’ve seen this year. Underpinning that lift in confidence, households are feeling more optimistic about the outlook for the economy over the coming years. In fact, the proportion of people who expect economic conditions will improve over the coming year is the highest it’s been since 2021. And that growing optimism has also given spending appetites a boost. Earlier this morning, their GDP q/q also came through higher at 1.1% from forecasts of 0.9%.