The AUD/USD pair saw a minor recovery from its 13-month low late Wednesday. However, its potential for further gains is closely tied to movements in USD/CNH. Meanwhile, the ASX 200 looks poised for a bounce, supported by record highs in the Nasdaq and near-record levels in the S&P 500, though mixed performances on Wall Street could limit gains.
US Dollar Strength and AUD/USD Pressure
US inflation data came in as expected, with core CPI rising 2.7% year-over-year and 0.3% month-over-month. This is unlikely to deter the Federal Reserve from cutting rates next week, though markets expect a pause in January. The data drove the US dollar higher for a fourth consecutive day, pushing USD/JPY to a two-week high and pressuring AUD/USD.
Wall Street Influences on the ASX 200
The Nasdaq 100 reached a record high, fueled by strong performances from Nvidia, Alphabet, and Tesla. The S&P 500 also ended its two-day decline and is nearing its all-time high, while Dow Jones futures extended losses for a fifth day. This mixed performance on Wall Street suggests that while the ASX 200 could bounce, gains may remain capped.
Bank of Canada and Rate Cuts
The Bank of Canada cut interest rates by 50 basis points to 3.25% and hinted at a potential pause next year. The decision reflects lower inflation, an economy with excess supply, and a return to making rate decisions on a meeting-by-meeting basis.
Yuan Weakness Impacts AUD/USD
China has indicated that it may allow the yuan to weaken further to address risks from US tariffs. USD/CNH rose 0.7% from Wednesday’s low, pushing AUD/USD to a fresh 13-month low. The Australian dollar closely tracks yuan movements, meaning further weakness in the yuan could drag AUD/USD lower. Australian jobs data due soon could provide temporary support for the Aussie, as employment figures often surprise on the upside.
AUD/USD and USD/CNH Technical Analysis
USD/CNH formed a bullish engulfing day amid stronger US dollar demand and yuan weakness. While AUD/USD attempted to recover above key levels, the pair remains vulnerable. A higher USD/CNH, particularly if it approaches the 7.3 level, could drive AUD/USD lower. Traders should monitor Australian employment data, as it could influence short-term sentiment.
ASX 200 Technical Outlook
The ASX 200 is recovering from last week’s pullback and looks set to hold above key levels, including the weekly volume point of control (VPOC) and the monthly pivot point. With strength in two out of three major Wall Street indices, the ASX 200 could extend its bounce. However, volatility may persist before the traditional “Santa Rally,” which typically begins around December 20. Bulls may target dips within the overnight range, aiming for last week’s value area low (8462) or the weekly VPOC (8487).
Key Economic Events Ahead (AEDT)
- Australia Employment Report (11:30): The market expects unemployment to rise to 4.2% from 4.1%, with 26,000 new jobs added and the participation rate steady at a record 67.1%. Surprises in these figures could heavily influence AUD/USD, especially if unemployment climbs or participation falls.
- NZ Retail Sales (08:45)
- RBA Assistant Governor Jones Speech (09:15)
- JP Foreign Bond and Stock Purchases (10:50)
The AUD/USD outlook remains tied to yuan movements, while the ASX 200 benefits from broader market optimism, tempered by mixed Wall Street trends.
