The Week in FX: RBNZ Ends Easing, RBA Hears Inflation, and Fed Rumors Roil the USD

( )

he dollar lost ground last week against more or less every major currency worldwide, as word leaked that ultradovish Trump loyalist Kevin Hasset may be picked to replace Jerome POwell as chair of the Federal Reserve. Expectations for a cut at its December meeting have been growing, and the terminal Fed rate is already just below 3%. Although we think the market is getting ahead of itself here, the dollar nevertheless retreated toward the middle of the range that has held against its major peers since early summer. The New Zealand dollar was the week’s winner after the RBNZ hinted that its easing cycle has ended.

The US economic calendar remains on the backburner for markets, as most data being release for now are quite lagged, after the long Federal shutdown. However, the September PCE inflation report out Thursday stands out as a potential market mover. Beyond that, confirmaiton of Trump’s pick for next chair of the Federal Reserve, as well as Powell’s mMonday speech are key; currency markets seem increasingly driven by the prospects of Fed policy. Eurozone flash inflation Tuesday will also draw traders’ attention.

AUD

The antipodean currencies posted strong weekly gains last week, boosted by both rising bets in favour of Fed easing on the one hand, and fading expectations for further domestic rate cuts on the other. Last week’s October inflation figures effectively cemented the argument in support of no further RBA rate cuts for as far as the eye can see. The main inflation measure ticked back up to 3.8% last month, its highest level since June 2024, while the RBA’s preferred trimmed mean measure also edged up to 3.4%, still well above the midpoint of the bank’s 2-3% target range. Australian bond yields rose (the 10-year is now at its highest level since May), and the dollar rallied against most of its major peers, with markets now seeing more chance that the next move in rates will be up, rather than down.

Third quarter GDP figures will be released on Wednesday, followed by the October trade figures on Thursday. Another couple of strong readings here would all but completely extinguish any lingering calls for further RBA cuts, while acting to continue to keep a bid under the Aussie dollar.

NZD

The new RBNZ Governor takes office tomorrow, stepping in after most (if not all) of the heavy lifting has already been done. Last Wednesday, the Reserve Bank of New Zealand cut the Official Cash Rate by 25 basis points to 2.25%, effectively signalling the end of its easing cycle. While the bank left the door slightly ajar for one final cut, its latest projections assign only a one-in-five probability to that outcome. In its accompanying statement, the RBNZ emphasised that an economic recovery is underway and still in its early stages, a view that has since been bolstered by encouraging retail sales figures and improving business and consumer confidence.

Reflecting this positive news, the kiwi was the top-performing G10 currency last week, gaining more than 2% against the US dollar. With this week’s domestic calendar looking quiet, attention turns squarely back to the United States, where expectations for a December rate cut continue to rise.

USD

The largely lagged data coming out of the US after the shutdown does not so far change the picture significantly. Growth remains steady, job creation is subdued but there are no signs of significant labor shedding as yet. While the market is already pricing in significant Fed dovishness this meeting and into next year, we think there is room for disappointment here. Whatever loyalist dive Trump ends up choogin to succeed Powell, the normal rotation will add some hawkish voices to the FOMC starting in January, and we expect every potential cut after this moth’s meeting to be fierecely fought out inside the committee.Inflation remains stubbornly high at 3% and it has shown no signs of trending back down, quite the opposite in fact.

CNY

In recent days, the dollar’s broad weakness pushed USD/CNY to its lowest level since October last year. The latest economic data from China was quite downbeat. Official PMIs disappointed in November, with all indices now below the key 50 mark and manufacturing dropping to a six-month low. Industrial profits data for October was also not pleasing to the eye, showing a sharp 5.5% YoY contraction after two months in positive territory.

This week, attention will be on the remaining PMI readings from RatingDog. Otherwise, it should be a relatively quiet period in terms of China-specific newsflow. The main thing to watch are broad dollar moves.