Image source: Pixabay
 

Overview: The US dollar is mostly lower today. The pendulum has shifted hard in favor of a rate cut next month and this has taken the wind from the dollar's sails. The New Zealand dollar is leading today's move after the central bank cut rates for perhaps the last time in the cycle. The Australian dollar also extended its gains on the back of firmer than expected October CPI. The other G10 currencies are posting minor gains ahead of the North American open but the Japanese yen, which is off about 0.3%. Most emerging market currencies are also firmer. The rise of the Chinese yuan to new highs for the year was reaffirmed by the PBOC, which lowered the dollar's reference rate for the fourth consecutive session. Although the US has several high-frequency data reports, the highlight is the Fed's Beige Book late in the North American session. And still to come is the UK's budget. 

Equities are rallying today. All the large bourses in the Asia Pacific rallied. Indices in Japan, Taiwan, South Korea, and India rose by at least 1% today. The regional index is posting its third consecutive rise, as is Europe's Stoxx 600, which is up about 0.40% through most of the European morning. US index futures are modestly higher, set to extend their rallies. Benchmark 10-year yields jumped in Australia and New Zealand but are practically flat in Europe. The 10-year UK Gilt is unchanged, near 4.49%. The 10-year US Treasury yield, which dipped below 4% yesterday for the first time this month, is slightly above there now. Gold is recouping yesterday's minor loss (~0.15%) and is up about 0.7% through the European morning. It stalled near $4170, an eight-day high. January WTI is in about a 30-cent range around $58. Yesterday, it recorded the low for the month, near $57.10. Last month's low was about $56. 

USD: The Dollar Index consolidative phase is being challenged as the market re-prices a Fed cut next month to above 80% and with little time for Fed officials to push against it before the black out period ahead of the FOMC meeting begins this weekend. Yesterday, in North America, it slipped to a four-day low near 99.65. It made a marginal new low today at 99.60. Nearby chart support maybe around 99.50 and then 99.20. A bearish double top pattern may be forming, but it takes a break of the 99.00 area to confirm. The US reports weekly initial jobless claims, September durable goods orders, but the market may be most sensitive to the headlines around the Beige Book. The absence of timely real sector data may give the anecdotal report more heft than usual. That said, Chair Powell has often referred to it. Surveys should consumer sentiment is poor and household debt stress levels are high, as is fear of losing one's job (five-year high). Still, Walmart and the Gap, for example, have reported strong quarterly earnings. Meanwhile, Boeing reported net new orders for 95 aircraft in September, the same as in August. Orders fell in October to 15. Orders jumped this month at the Dubai Air Show. 

EURO: The euro reached a four-day high of about $1.1585 yesterday. It approached more formidable resistance today near $1.1600, which is reinforced by a little more than one billion euros of options at $1.1595 that expire today and another stack at $1.1575 that expires tomorrow at $1.1575. Even then, it probably takes a push above the mid-November highs around $1.1655 to suggest more than broad consolidation. The narrowing of the US two-year premium to a new low for the year near 145 bp is supportive for the single currencies. The eurozone reports money supply and lending figures tomorrow and the highlight of the week is Friday's release of national November CPI figures from EMU's largest members. 

CNY: The dollar was sold to new lows for the year against the offshore yuan yesterday and has extended its losses today to almost CNH7.0750. It has not been lower since October 2024. Recall that it bottomed in late September last year near CNH6.9715. After reducing the dollar's reference rate for the third consecutive session yesterday, the greenback's heavier tone saw it extend the streak into the fourth session, matching the longest such streak since April-May. The fix was set at CNY7.0796, a new low since last October. The dollar has fallen to about CNY7.0780 today from a high near CNY7.12 last week. about CNY7.0845 yesterday, a new low since last November against the onshore yuan. The low last September was slightly above CNY7.0050. China reports October industrial profits tomorrow. They have improved for the past few months as the campaign against over-investment takes hold. Some Chinese critics point to the low share of consumption as a proportion of GDP, even though consumption per capita is rising. As investment as a percentage of GDP falls, the share of consumption will rise as well as profitability. 

JPY: As the US 10-year yield slipped to almost 4%, the dollar slipped to a new four-day low against the yen yesterday near JPY155.80. The JPY155.75 area holds the (50%) retracement of the last leg up that began from around JPY152.60 on November 14. The dollar is firmer today and is probing session highs near JPY156.50 in late in the European morning. While in recent days, the market has boosted the chances of a Fed cut next month, the odds of a BOJ hike have increased. At the end of last week, the swaps market was about 16%. It now stands near 40%. Japan reported that October PPI for services slowed to 2.7% in October from 3.1% in September. It peaked at 3.7% last year and has not been above 3.4% this year. Tomorrow, it will likely confirm the surge in machine tool orders of 16.8% year-over-year in October from 11.0% in September. It is the strongest since June 2022. Friday sees several important high frequency data points that may include slightly softer Tokyo CPI (November), the unemployment rate ticking low (2.5% vs. 2.6%), firm retail sales (0.8%) and a fall in October industrial output after the 2.6% jump in September, the largest rise since March 2024. 

GBP: Chancellor Reeves will present the budget today beginning around 7:30 AM ET. It has been highly anticipated, and some parts apparently leaked. Her task is to restore some fiscal headroom while not violating key campaign promises and/or providing more fodder for Farage's UK Reform Party that is running strong in polls. The Office for Budget Responsibility will provide updated economic projections. In addition to providing new fiscal space, Reeves is expected to unveil measures that could reduce inflation by around 0.4% by mid-2026 that would ostensibly give the central bank more scope to cut interest rates, which reduce debt servicing costs. Such measures may include freezing train fares, and freezing fuel duty for another year. Reports yesterday suggested that a tourist tax may be imposed by local officials of around GBP2 a night. It is possible that an exit charge could be levied on people moving abroad, and limited partnerships may face higher taxes. Sterling has pushed higher in the run-up today's budget. It reached an eight-day high against the dollar yesterday near $1.3215 and settled above the 20-day moving average for the first time since October 17. Sterling is consolidating ahead of the budget announcement in a little more than a third of a cent below $1.3200. It posted its highest settlement close of the month above $1.3200. Sterling traded near a three-week high against the euro yesterday and is consolidating now before the budget. 

CAD: Despite the US dollar's setback against the euro, yen, and sterling yesterday, it proved more resilient against the dollar-bloc currencies and the Scandis. It set a range last Friday of roughly CAD1.4080-CAD1.4130 and has remained in the range in the past couple of days but marginally took it out today, slipping to about CAD1.4070. The daily momentum indicators still look constructive. The week's data highlights still lie ahead: Q3 current account deficit (deteriorating this year) is due tomorrow and September and Q3 GDP on Friday. 

AUD: The Australian dollar continued to struggle to sustain upside momentum It recovered from near a 3-month low near $0.6420 before the weekend but stalled around $0.6470 on Monday. After returning to almost $0.6435 yesterday, the Aussie had a running start and took out $0.6470 by a few hundredths of a cent to reach a three-day high. The firmer than expected CPI today lifted the Australian dollar a little above $0.6510 today. Nearby resistance is seen near $0.6520. Options for nearly A$1.2 bln at $0.6500 and A$1.7 bln at $0.6535 expire today. Australia reported firmer than expected headline CPI that rose to 3.8% from 3.6% and the core (trimmed mean) rose to 3.3% from 3.2%. The futures market has already given up previous hopes of a rate cut next month. The highest the odds had begun this month was around 27% in the first week, and now it is now less than 5%. The other notable development was that the Reserve Bank of New Zealand delivered another cut in the easing cycle that began in August 2024. The new target rate is 2.25%. It was a "hawkish cut" as the RBNZ did not project another cut. The market was leaning to see today's cut as probably the end of the cycle, and this reinforced it. The New Zealand dollar rallied from a seven-month-low at the end of last week (~$0.5380) to almost $0.5700 today, retracing about half of this month's decline. The next retracement (61.8%) is near $0.5720. It has pulled back to about $0.5670, where options for almost NZD800 mln in options expire. 

MXN: A cap to the dollar has been forged over the past three sessions around MXN18.53, which is around the (50%) retracement of the greenback's decline from the month's high near MXN18.77. The dollar is recorded lower lows for the third consecutive session today. Monday's low was about MXN18.4150 and it was sold yesterday to almost MXN18.3730. Today's low is around MXN18.3580. Yesterday, Mexico reported flat September retail sales (vs. the median forecast in Bloomberg's survey of -0.4%). The year-over-year rate improved to 3.3% from 2.4%, which is the best since March. Separately, in Q3, Mexico's current account balance swung into surplus ($2.3 bln) after deficits in Q1 and Q2. Through Q3, Mexico reported a $10.63 bln deficit compared with a deficit near $27.56 bln in the first three quarters of 2024. Note that through September, worker remittances alone account for $45.7 bln keeping the external account in a healthy position. Tomorrow, Mexico's central bank releases its inflation report where it updates its economic forecasts.

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