Asian session review: the US dollar has stabilized against major currencies

During today's Asian trading, the US dollar consolidated against major currencies, as market participants took a wait-and-see position ahead of tomorrow's publication of US CPI data, which may provide further clues on the pace of Federal Reserve easing.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.02% to 106.12. As for the US CPI data, economists expect consumer inflation to rise in November by 2.7% per annum after an increase of 2.6% per annum in October. The core consumer price index, which excludes food and energy prices, is projected to show an increase of 3.3% year-on-year, which is in line with the pace of the previous two months. If the inflation data is in line with economists' estimates, or turns out to be lower, this is likely to strengthen the arguments in favor of a third consecutive reduction in interest rates by the Fed at the last meeting in 2024, which will be held on December 17-18. Meanwhile, a hot U.S. CPI print may not necessarily derail a cut at next week's FOMC meeting, but it would affect the level of implied cuts priced for FOMC meetings from March 2025 onwards. According to the CME FedWatch Tool, markets see a 89.5% probability of a 0.25% rate cut in December (compared to 72.9% a week ago), while the probability of an additional rate cut in January is 21.1%.

The Australian dollar fell by 0.65% against the US dollar, and reached a four-month low amid the outcome of the Reserve Bank of Australia (RBA) meeting, which kept the interest rate at 4.35%, but softened its tone on the inflation outlook, raising expectations for an earlier interest rate cut. The previous change in the interest rate was in November 2023, when it was lifted by 25 basis points to the highest level since late 2011. Today's statement omitted a previous line that the RBA was "not ruling anything in or out," as well as policy needing to remain restrictive. Thus, the Central Bank got rid of its hawkish bias, which is an important first step towards recognizing cuts. But the RBA will probably want to see a further loosening of the labor market before cutting interest rates. Swaps now imply there is more than a 50% chance of a rate cut in February, with a first easing more than fully priced in by April next year.