Market Briefing: Jobs report in focus today
The December edition of our Event Radar & Views In A Nutshell pack is here.
Mixed signals. US CPI matched forecasts boosting expectations for a Fed cut next week. US equities rose but so did bond yields. USD firm.
Policy trends. BoC cut by 50bps. But flagged a more measured pace. ECB expected to cut again tonight. Shifting yield spreads remain USD supportive.
AUD impulses. AUD whipped around by newsflow. AU jobs data released today. Short-term AUD reaction to data likely to be binary.
It was a busy night in terms of newsflow, however, outside of a jump up in US equities most other markets were well contained with the odd burst of volatility fading. The S&P500 rose (+0.9%) with the NASDAQ (+1.8%) touching a fresh record thanks to a strong performance by the ‘Magnificent Seven’ stocks. US inflation came in as predicted with headline CPI ticking up in November (now 2.7%pa) and core inflation holding steady at an above target 3.3%pa. While there are signs the disinflation trend is stalling (US core CPI has moved sideways for a few months) and this may prevent the US Fed from lowering rates much further in 2025, shorter-term it is unlikely to prevent another cut in December. This is something myopic equity markets latched on to. Another 25bp reduction by the US Fed next week is now assigned a 95% chance, though if you step back there is a little less easing discounted in 2025 with just over 3 cuts priced in by next December.
Led by the long-end of the curve US yields nudged up with the benchmark 10yr rate ~4bps higher (now ~4.27%). Further north, as anticipated the Bank of Canada delivered another 50bp rate cut. This lowered the policy rate to 3.25%, down from 5% in June, with the BoC moving quickly to shift settings out of ‘restrictive’ territory. However, with the level of rates near ‘neutral’ the BoC indicated it will be evaluating the need to do more “one decision at a time”. Given widening cracks in the Canadian jobs market and risks posed by US tariffs further BoC easing still looks likely, albeit at a slower pace. The more measured BoC tone saw Canadian yields lift ~6-7bps. In FX, this helped USD/CAD (now ~1.4160, the upper end of its multi-year range) recoup some of its modest post-US CPI losses. Elsewhere, shifting yield differentials in the US’ favour supported the USD index with EUR falling under ~$1.05. GBP consolidated (now ~$1.2745), and the interest rate sensitive USD/JPY edged higher (now ~152.55). Also dragging on the JPY were reports indicating that while another Bank of Japan rate hike next week is possible officials saw little cost in waiting until Q1 before acting.
Closer to home AUD and NZD were weighed down during European trade after a story broke stating authorities in China are contemplating allowing the yuan to depreciate next year to counter higher trade tariffs. Given the tight (negative) correlations the knee-jerk ~0.5% rise in USD/CNH pushed NZD to a new 2024 low before it picked itself up off the canvas (now ~$0.5785). AUD also recovered to be broadly inline with where it was this time yesterday (now ~$0.6370).
Tonight, focus is on the ECB (12:15am AEDT). Another 25bp cut is expected, so attention will be on its guidance. Challenges faced by the Eurozone economy point to more cuts down the track. We think this combined with US outperformance and the Trump policy mix can keep the USD supported.
Global event radar: ECB Meeting (Tonight), China Data (16th Dec), FOMC Meeting (19th Dec), BoJ Meeting (19th Dec), BoE Meeting (19th Dec)
AUD Corner
AUD has been whipsawed around a bit over the past 24hrs by US inflation, reports authorities in China are mulling the option of allowing the CNH to weaken, a firmer USD due to rising US yields and a softer JPY, and positive risk sentiment (as illustrated by firmer US equities) (see above). But on net, the AUD is little changed from where it was this time yesterday with the currency still hovering near the bottom of its multi-month range (now ~$0.6372). That said, outside of a modest dip in AUD/CAD (now ~0.9023) on the back a ‘hawkish’ BoC rate cut, the AUD has nudged up on the other major crosses with gains of ~0.1-0.3% recorded against EUR, JPY, NZD, and CNH.
Locally, RBA Deputy Governor Hauser spoke last night with the impacts of US trade policy a focus. Notably, as per our thinking (see Market Musings: Trump 2.0 & the AUD), the RBA’s analysis finds that direct impacts on Australia would probably be limited given the modest amount of exports sent to the US. Moreover, as we also outlined, although there is uncertainty because of the many scenarios that may play out and potential indirect impacts via China, people should “be careful not to jump to conclusions”. The response of policymakers in China to any growth shock also needs to be considered. Indeed, as discussed, we feel any steps by China to bolster commodity-intensive infrastructure investment to offset tariff-induced export pain may be supportive for the AUD given this is where Australia’s key exports are plugged into.
Given the looming start of the RBA’s easing cycle we believe the AUD could be sensitive (and react in a binary fashion) to the top tier data over the next few months. Today, the November jobs report is released (11:30am AEDT). Despite the slowdown in GDP growth, the still high level of activity, particularly across the labour-intensive services sectors and the public sector, is holding things up. Another solid month of jobs growth is expected (mkt +25,000) with an uptick in labour supply projected to see the unemployment rate drift a fraction higher (mkt 4.2%). In our view, this type of mix might give the beleaguered AUD some support, particularly on the crosses. RBA rate cuts are looked for over 2025. But we believe a resilient labour market and stickiness in core inflation points to the RBA lagging its peers (markets are still only pricing in ~3.5 cuts next year). Diverging policy trends could help the AUD claw back ground against currencies such as the EUR, CAD, CNH, and NZD. In terms of AUD/USD, while upside potential looks constrained by the firmer USD impulses generated by the Trump policy mix, we remain of the view that it is unlikely to sustainably fall much further from already low levels as it is trading at a discount to our ‘fair value’ estimates and with various capital flow supports still in place.
AUD event radar: AU Jobs (Today), ECB Meeting (Tonight), China Data (16th Dec), FOMC Meeting (19th Dec), BoJ Meeting (19th Dec), BoE Meeting (19th Dec)
AUD levels to watch (support / resistance): 0.6300, 0.6340 / 0.6440, 0.6500
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
THURSDAY (12th December)
AUD RBA’s Jones Speaks (9:15am)
AUD Jobs Report (Nov) (11:30am)
FRIDAY (13th December)
EUR ECB Decision (12:15am)
USD PPI Inflation (Nov) (12:30am)
USD Initial Jobless Claims (12:30am)
EUR ECB President Lagarde Speaks (12:45am)
NZD Net Migration (Oct) (8:45am)
JPY Tankan Survey (Q4) (10:50am)
AUD RBA’s Hunter Speaks (12:30pm)
GBP GDP – Monthly (Oct) (6pm)
EUR ECB’s Holzmann Speaks (8pm)
EUR Industrial Production (Oct) (9pm)
*Note, all times/dates provided are AEDT
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