Wild Ride Could Await AUD Around Trump's Inauguration — Market Talk

The Australian dollar rose above $0.62 on Monday, reversing a two-day decline, as stronger commodity prices and a broader risk-on sentiment provided support.

The Aussie also benefited from a pullback in the US dollar ahead of Donald Trump’s inauguration, with traders awaiting more clarity on his proposed policies.

Additionally, a positive phone call between Trump and Chinese President Xi Jinping on Friday raised hopes for reduced US-China tensions.

Domestically, traders are closely watching next week’s quarterly inflation report for insights into the future direction of local interest rates.

Markets are speculating that the Reserve Bank of Australia may begin cutting rates as soon as next month.

Asian currencies consolidate against the dollar ahead of President Trump's inauguration due later today. The greenback is expected to be mostly influenced by U.S. political developments this week, Commonwealth Bank of Australia's Global Economic & Markets Research team says. While Trump has indicated that he'll sign dozens of executive orders on his first day in office, "we judge expectations may be too high for policy announcements this week," the team says in a research report. Hence, CBA expects the greenback to weaken again this week. USD/KRW is little changed at 1,458.39; AUD/USD edges 0.1% higher to 0.6203.(ronnie.harui@wsj.com)

The Australian dollar held steady around $0.621 on Friday, on track for its first weekly gain in seven, supported mainly by a retreat in the US dollar.

Cooling US inflation has spurred expectations of further Federal Reserve rate cuts this year.

Additionally, stronger-than-expected economic growth in China during the fourth quarter has improved the outlook for Australia’s largest trading partner.

Domestically, investors continued to assess the Reserve Bank of Australia’s monetary policy stance following the release of robust employment figures, while awaiting the latest inflation data.

Markets are currently pricing in a 70% probability that the RBA will cut its 4.35% cash rate by 25 basis points next month, with an additional rate cut in April already fully priced in.

Asian currencies consolidate against the dollar in the morning session but may be supported by hopes for Fed rate cuts that would spur risk-on sentiment. There were dovish comments from Fed Gov. Waller overnight, National Australia Bank's Rodrigo Catril says in a commentary. Waller said that if future inflation figures fall in line with December's readings, the Fed may cut rates more this year and sooner than investors are currently expecting, the senior FX strategist notes. USD/KRW is down 0.3% to 1,454.04; AUD/USD is 0.1% lower at 0.6212; USD/SGD is steady at 1.3665. (ronnie.harui@wsj.com)

Societe Generale in its early Thursday economic news summary pointed out:

— The US dollar index rebounds to pre-consumer price index level, two-year United States Treasury defends 4.26% support. 10-year stabilizes at 4.65% after a 13bps drop on Wednesday, Brent crude climbs above $82/barrel. Below forecast U.S. CPI doesn't change the outlook for Federal Reserve pause at January FOMC.

— Yen/G10 crosses offered on mounting optimism of Bank of Japan rate increase next week. Scott Bessent, President-elect Trump's pick for treasury secretary, testifies at a Senate confirmation hearing on Thursday.

— United Kingdom November gross domestic product growth 0.1% month over month, below forecast (0.0% 3m/3m). Services +0.1%. Manufacturing -0.3%, construction +0.4%. OIS pricing a 91% probability of a Bank of England cut in February. flat at 1.2215, defends 200dma (0.8425).

— Australia's December employment adds 56,300 jobs, full-time slips 23,700, part-time up 80,000. The unemployment rate climbs to 4.0%. OIS pricing a 73% probability of a Reserve Bank of Australia rate cut in February. ACGB three-year -9.7bps at 3.95%. -0.1% at 0.6213.

— Bank of Korea unexpectedly holds the key rate at 3.0%, the consensus was a 25bps cut. BoK cites weak won and political turbulence.

— Day ahead: U.S. retail sales, SocGen forecasts up 0.5% month over month, excluding autos 0.3% rise, control group 0.5% higher. Philly Fed business outlook, weekly jobless claims. European Central Bank accounts of December meeting. ECB speaker Panetta. Poland central bank (NBP) forecast to stay on hold.

— Nikkei +0.3%, EUR 10-year IRS +1bp at 2.52%, Brent crude +0.3% at $82.3/barrel, Gold +0.2% at $2,697/oz.

The Australian dollar slipped toward $0.62 on Thursday, ending a three-day streak of gains as investors reacted to a mixed jobs report.

While Australia’s unemployment rate rose slightly to 4% in December from 3.9% in November, employment growth exceeded expectations.

Looking ahead, investors are focused on Australia's fourth-quarter inflation data, due at the end of the month, which will be a key indicator ahead of the Reserve Bank of Australia's upcoming monetary policy decision in February.

Markets are currently pricing in a 70% probability that the RBA will cut its 4.35% cash rate by 25 basis points next month, with a rate cut in April already fully priced in.

Meanwhile, the Aussie saw a half-percent gain on Wednesday as the US dollar retreated following a surprise decline in US core inflation, fueling expectations of further Federal Reserve rate cuts this year.