Energy: Prices Off to a Strong Start

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, drifts lower for the second straight day on Monday and retreats further from its highest level since November 2022 touched last week. The index retains its negative bias through the first half of the European session and currently hovers around the 108.70-108.65 area, down 0.25% for the day, though the fundamental backdrop warrants caution for bearish traders. 

The US ISM Manufacturing PMI improved from 48.4 to 49.3 in December, pointing to signs of economic resilience and potential for growth amid the optimism over US President-elect Donald Trump's expansionary policies. This, in turn, validates the Federal Reserve's (Fed) hawkish shift in December, signaling that it would slow the pace of interest rate cuts in 2025, which remains supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond reached its highest point since May 2 and favors the USD bulls. 

Apart from this, persistent geopolitical risks stemming from the protracted Russia-Ukraine war and tensions in the Middle East, along with concerns about Trump's tariff plans, support prospects for the emergence of dip-buying around the safe-haven buck. Hence, any subsequent USD fall could be seen as a buying opportunity and remain limited ahead of this week's important US  macro releases, including the Nonfarm Payrolls (NFP) on Friday. In the meantime, traders on Monday might take cues from the final US Services PMI and Factory Orders data.

Source: FXSTREET

AUD/JPY continues to gain ground for the third consecutive day, trading around 98.50 during the European hours on Monday. This upside of the AUD/JPY cross is attributed to the improved Australian Dollar (AUD) following the release of the Judo Bank Australia Purchasing Managers' Index (PMI) and the Caixin Services PMI for China. Given their close trade relationship, fluctuations in China’s economy often have a notable impact on Australian markets.

The Judo Bank Australia Composite PMI for December 2024 was revised upward to 50.2 from an earlier reading of 49.9, signaling a third consecutive month of modest growth in private sector output. This growth was primarily driven by the services sector, while manufacturing output continued to contract. The Services PMI was also revised higher to 50.8 from 50.5 in November, representing the eleventh consecutive month of expansion in the services sector.

In China, the Caixin Services PMI increased to 52.2 in December 2024, up from 51.5 in November, surpassing market expectations of 51.7. This marks the fastest growth in the Chinese services sector since May, reflecting robust performance. 

On Monday, Reuters reported that the Shanghai Stock Exchange has committed to deepen capital markets opening during a meeting with foreign institutions. China’s economy is underpinned by solid fundamentals and demonstrates resilience amid a complex global environment.

In Japan, composite and services PMIs for December were revised lower, reinforcing a dovish outlook on the Bank of Japan’s (BoJ) policy and exerting downward pressure on the Japanese Yen (JPY). The Jibun Bank Japan Services PMI was revised down to 50.9, falling short of the anticipated 51.4. Despite the downward revision, the reading improved from November’s 50.5, marking the second straight month of growth and the fastest pace since September.

Meanwhile, the Jibun Bank Japan Composite PMI rose to 50.5 in December from 50.1 in November, marking the second consecutive month of growth. While indicative of only marginal expansion, this was the strongest reading in three months. The increase was driven by modest growth in the services sector, alongside a softer contraction in manufacturing output.

Source: FXSTREET

Source: AP