Currency Week Ahead: AUD Outperforms, NZD Hikes Priced In, and the Dollar’s Next Move

AUD

The Australian dollar extended its impressive run last week, as it strengthened to its highest level on the US dollar since mid-September, outperforming all other G10 currencies in the process. Last week’s slightly underwhelming third quarter GDP report (+0.4% QoQ vs. +0.6% estimate) failed to take the gloss off of the Aussie currency, which continues to remain well supported amid growing bets that the next move in RBA rates will be up, rather than down. 

Tuesday’s RBA policy decision will be a non-event in terms of the rate announcement itself, with markets assigning no chance at all of any change in policy. Focus will instead be on the tone of the bank’s communications. We expect officials to flag discomfort over the uptick in domestic inflation, while saying that risks to the growth outlook are balanced. Swap markets are now pricing in around 35 basis points of hikes in 2026, but we don’t expect the RBA to endorse this in any way, shape or form just yet, as officials would first need to see far more evidence of sustained inflationary pressures. Expect governor Bullock to instead emphasise data-dependence during her press conference.

NZD

The New Zealand dollar posted its second consecutive weekly gain against the US dollar, nearing the 0.58 level. This sustained strength follows the Reserve Bank of New Zealand’s November meeting, where a 25 bps rate cut was accompanied by strong signals that the easing cycle is over. Markets appear to agree: headline inflation is widely expected to return to target next year, and pricing now reflects a greater probability of the RBNZ’s next move being a hike rather than another cut. 

The domestic data calendar is light this week, featuring only second-tier releases. Third-quarter manufacturing sales are due on Wednesday, followed by manufacturing PMIs on Thursday, alongside the more timely electronic card retail sales figures (also Thursday). With little local news to drive the currency, the kiwi will largely take its cues from Wednesday’s Federal Reserve decision and communications.

USD

US labor market data continues to send mixed signals. The official data is relatively positive, if lagged because of the shutdown. Weekly jobless claims fell to a new post-Covid low last week. However, private data shows a more negative picture. At any rate, the data shows no sign of a recession, and the AI investment boom continues to underpin the US economy. We think the market may be getting ahead of itself by pricing in Fed cuts for 2026, and the FOMC dots plot and general communications this week may start hinting in that direction. The committee’s voting rotation will install four regional bank presidents, three of whom we expect to be rather hawkish. An obviously political loyalist like Hassett will have a difficult time building consensus, and we epxect the Fed meetings to turn increasingly heated and riven by dissent as the months go by.

CNY

The yuan reached a fresh 14-month high versus the broadly weaker dollar last week, but the extent of it was fairly limited. According to a Reuters report, Chinese state banks were active in the market to stem the currency’s rise, with the strategy seemingly aimed at limiting the attractiveness of long-yuan bets. The intervention underscores authorities’ determination to prevent the currency from appreciating too much, too fast.

Last week’s activity data added to the recent run of soft releases. PMIs fell across the board, and the official composite PMI at 49.7 in November reached its lowest level since December 2022. Upcoming trade, inflation, and new loan figures will draw attention, but near-term yuan direction will still hinge primarily on the dollar’s behaviour and China’s determination to cap the currency’s volatility.