Key Moments
- The dollar index and related futures traded mostly flat in European hours as investors awaited U.S. labor market data due this week.
- Geopolitical tensions, including the U.S. incursion in Venezuela and the Japan-China dispute over export restrictions, remained in focus but did not trigger major FX moves.
- The Australian dollar (AUD/USD) rose to its highest level since October 2024, despite weaker headline inflation, as underlying price pressures remained above the RBA’s target.
Dollar Stable Ahead of Labor Data
The U.S. dollar moved in a narrow range as participants positioned cautiously before several labor market indicators due this week. These figures could influence upcoming Federal Reserve interest rate decisions.
Both the dollar index and related futures were largely unchanged during European trading, showing limited appetite for large moves before fresh data arrived.
Investors are particularly focused on December nonfarm payrolls, due Friday. These numbers will offer further insight into the Fed’s potential policy path.
Geopolitics Keep Markets Cautious
Geopolitical developments continued to weigh on sentiment. The U.S. incursion in Venezuela remained a major concern. President Donald Trump said Caracas agreed to supply 30–50 million barrels of oil to the U.S. after Venezuelan President Nicolas Maduro was captured last week.
Despite these tensions, regional currencies mostly held steady. Traders appeared willing to look beyond recent flare-ups and maintained their positions.
Asian FX Mixed as Risk Appetite Stays Muted
Asian currencies saw modest support from the dollar’s subdued moves, while broader risk appetite remained muted.
The Japanese yen (USD/JPY) gained some attention amid speculation about further Bank of Japan rate hikes and potential currency intervention.
Meanwhile, the diplomatic dispute between Japan and China escalated. Beijing imposed export restrictions on goods with potential military use, affecting trade. The Chinese yuan (USD/CNY) held near its strongest levels in 2½ years.
| Currency Pair | Driver / Context |
|---|---|
| USD/JPY | Speculation over further BOJ rate hikes and possible FX intervention |
| USD/CNY | Held at strongest levels in 2½ years amid Japan-China diplomatic tensions |
Australian Dollar Hits 15-Month Peak
The Australian dollar (AUD/USD) reached its highest level since October 2024. This gain came even after weaker-than-expected headline CPI for November.
The softer headline reflected lower retail spending and electricity prices. However, underlying inflation declined only slightly and stayed above the RBA’s 2–3% target range.
These figures suggest limited cooling in price pressures. Analysts expect the RBA will keep interest rates steady in the near term.
ANZ analysts noted that the RBA may even consider raising rates later this year, though their baseline expectation keeps the cash rate at 3.60% until next year.
| Indicator / Policy | Detail |
|---|---|
| Headline CPI (Nov) | Weaker than expected, weighed down by softer retail spending and electricity prices |
| Underlying inflation | Declined slightly, remained above the RBA’s 2–3% target |
| RBA cash rate | Baseline view: 3.60% until next year |
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