AUD/USD pares gains after RBA rate decision

Today’s headlines

What’s happening: The Australian dollar fell against the US dollar this morning, after hovering close to its strongest level in around three months.

What happened: A hawkish stance by RBA Governor Michele Bullock and some profit taking impacted the Australian dollar, which had been on an uptrend against the USD since the last week of November.

Investors also responded to the latest economic reports released by Australia on Tuesday.

Why it matters: The Reserve Bank of Australia kept its cash rates unchanged at 3.60% at its latest meeting, in-line with market expectations.

RBA Governor Michele Bullock surprised markets with a hawkish shift in tone. While ruling out further interest rate cuts in the near term, she signalled prospects of rate hikes as early as in February in case inflation fails to ease.

The RBA noted that inflation has slowed significantly compared to the 2022 highs but has recently risen.

Data released on Tuesday showed Australia’s private house approvals declined 2.1% to 9,251 units in October, following 3.2% growth in the previous month. The figure came in-line with the preliminary reading.

Building permits dipped 6.4% to 15,832 units in October, following an 11.1% surge in September. Australia’s NAB Business Confidence Index declined to a reading of 1 in November from 6 in October, reaching the lowest level since April.

Strength in the US dollar weighed on the AUD/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, edged higher to 99.23 this morning.

The AUD/USD pair fell more than 0.1% to 0.6633 this morning after trading close to its strongest level in nearly three months earlier in the session. The S&P/ASX 200 gained slightly to 8,587.50 this morning.

What to watch: Data on employment change (0430 UAE Time), unemployment rate (0430 UAE Time) and participation rate (0430 UAE Time) will be released on Thursday. Employment in Australia, which jumped by 42,200 to a record high of 14.68 million in October, is expected to surge by 20,000 in November.

Australia’s unemployment rate, which fell to 4.3% in October from around four-year high levels of 4.5% in September, is expected to rise to 4.4% in November. Analysts expect the labour force participation rate to rise slightly to 67.1% in November from 67% in the previous month.

The markets today

US stocks in focus today ahead of the Federal Reserve’s interest rate decision

Context: US stocks closed mixed on Tuesday, with the Dow Jones index shedding more than 150 points following a decline in JPMorgan’s shares.

Details: Investors await the last policy decision of the year by the Federal Reserve, with speculations suggesting a cut in the central bank’s key overnight lending rate by another 25 bps. The Fed had cut interest rates at its meetings in September and October.

Rising expectations of a rate cut sent the Russell 2000 small-cap index to a new record intraday high on Tuesday as lower rates provide a boost to small firms because the borrowing costs of these companies are more closely related to market rates than for bigger companies.

JPMorgan Chase’s shares fell around 5% after the company issued a higher-than-expected expense outlook for 2026.

The Dow Jones index dipped 179.03 points, or 0.38%, to close at 47,560.29 on Tuesday, while the S&P 500 slipped 0.09% to 6,840.51. The Nasdaq 100 bucked the trend, gaining 0.16% to settle at 25,668.69.

What to watch: The Federal Reserve will announce its policy decision later today (2300 UAE Time).

Data on US employment cost index (1730 UAE Time) will also remain in focus today. Compensation costs for civilian workers in the US, which rose by 0.9% in the second quarter, are expected to climb by 0.8% in the third quarter.

Other Markets: European indices closed mostly lower on Tuesday, with the FTSE 100, CAC 40 and STOXX Europe 600 down by 0.03%, 0.69% and 0.10%, respectively, and the DAX 40 up by 0.49%.

The news shaping the markets

Ukraine is looking to present a revised peace plan to the US after President Volodymyr Zelensky ruled out giving up land. The news sent the USD/RUB pair higher in forex trading this morning.

China’s annual inflation rate accelerated to 0.7% in November from 0.2% in October. The latest reading coming in-line with market estimates exerted pressure on the USD/CNY forex pair.

Japan’s producer prices surged 2.7% year-over-year in November, unchanged from the previous month. The latest reading was in-line with market expectations, which sent the USD/JPY pair lower in forex trading this morning.

South Korea’s unemployment rate surged to 2.7% in November, up from 2.5% in September and 2.6% in October, which lent support to the USD/KRW forex pair.

New Zealand’s visitor arrivals jumped 9.4% year-over-year to 262,700 in October, following a rise in visitors from Australia. However, the NZD/USD pair edged lower in forex trading this morning.

What else to watch today

Italy’s industrial production (1300 UAE Time), UK’s Treasury Gilt 2035 auction (1400 UAE Time), South Africa’s retail sales (1500 UAE Time), India’s M3 money supply (1530 UAE Time), Brazil’s inflation rate (1600 UAE Time), US MBA mortgage applications (1600 UAE Time), EIA crude oil and gasoline stockpile changes (1930 UAE Time), FOMC economic projections (2300 UAE Time), monthly budget statement (2300 UAE Time) and Fed press conference (2330 UAE Time), the Bank of Canada’s interest rate decision (1845 UAE Time), as well as Russia’s inflation rate (2000 UAE Time).