The US dollar is largely unchanged at the start of the North American session. Key currency pairs against the USD show minimal movement: EURUSD, GBPUSD, and USDCHF remain within a pip or so of their previous levels. The USDJPY is up 0.22%, continuing its upward correction that began after rebounds on Friday and Monday. Similarly, AUDUSD has risen by 0.22%, reflecting a weaker US dollar following the Reserve Bank of Australia (RBA) rate decision.

The RBA kept interest rates unchanged, with Governor Michele Bullock stating that the Board did not explicitly consider a rate hike during the latest meeting. However, scenarios requiring future tightening were actively discussed, particularly if inflation remains persistent. Bullock emphasised caution regarding upcoming monthly CPI data and highlighted that inflation and labour market reports, especially the quarterly inflation release, will be critical for the February meeting—the next opportunity to adjust rates following the RBA’s summer break.

She refrained from providing a timeline or assigning probabilities to future moves but made clear that rate cuts are not forthcoming. The Board sees downside risks to the economy but regards upside inflation risks as greater. Current inflation levels remain uncomfortable, and any response will be based on sustained data trends rather than isolated figures. Bullock’s remarks put February “in play” as a potential signal point for a March rate hike, which markets currently price with about a 45% probability. This guidance caused the AUDUSD to strengthen.

Meanwhile, Bank of Japan Governor Kazuo Ueda issued comments that could be seen as moderately hawkish ahead of the BoJ’s upcoming rate review on 19 December. Ueda said the Bank is closely monitoring market developments, particularly the sharp rise in long-term Japanese government bond yields. He signalled readiness to increase bond purchases if yields rise abruptly. Despite low real interest rates, any adjustment to monetary easing will depend on economic and price trends aligning with BoJ forecasts.

Ueda noted growing confidence in the policy outlook and is carefully observing companies’ wage intentions for next year. He pointed out that Japan’s tightening labour market is putting upward pressure on wages and prices. Calibrating monetary policy measures remains essential for both financial stability and price stability. He expects Japan’s economy to return to positive growth in the fourth quarter, supported by steady wage and price momentum and a stabilising effect from automakers keeping export prices low.

The Governor emphasised close attention to food inflation and yen weakness, which could affect inflation expectations. He reiterated the importance of monitoring wage plans and exchange rates’ fundamental role, as understanding how forex movements impact inflation remains a key policy concern. Overall, Ueda’s stance suggests caution but readiness to act if market conditions warrant.

In US markets, Treasury yields are mixed at the session open:

– 2-year yield at 3.583%, unchanged
– 5-year yield down 0.2 basis points to 3.749%
– 10-year yield down 0.8 basis points to 4.164%
– 30-year yield down 1.6 basis points to 4.799%

US equity indices show little change:

– Dow Jones Industrial Average up 12.68 points
– S&P 500 up 4.49 points
– NASDAQ down 2.2 points

On the geopolitical front, former President Trump informed China’s Xi Jinping that Nvidia’s H200 chips will be available to China. However, China may continue to limit demand. Nvidia’s CEO Jensen Huang warned that supply restrictions could push China to seek alternatives, which may already be occurring.

In commodities, prices are mostly higher:

– Crude oil up $0.11 at $58.99 per barrel
– Gold rising $16.97 (0.41%) to $1,420.61 an ounce
– Silver up $0.70 (1.21%) to $18.85 an ounce
– Bitcoin little changed at $90,512

Forex traders should also note the weekly ADP employment data release scheduled for 8:15 AM ET. The previous report showed job losses of 13,500, a key indicator to watch for labour market trends.

Original Source: Greg Michalowski of investinglive.com