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Dollar Juggernaut Gains Momentum

The almighty greenback is trading near a two-year high after Friday’s non-farm payrolls report reinforced expectations for a prolonged pause in the Federal Reserve’s easing cycle. When measured against a basket of its most widely-traded counterparts, the dollar is at its strongest levels since November 2022, supported by ten-year Treasury yields that are inexorably moving closer to the 5 percent threshold that was last broken in October 2023. Most major currencies are down roughly three quarters of a percentage point from Friday’s open, although the Canadian dollar is outperforming after December’s surprisingly-large gain in jobs, and the British pound is...

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Tariff Threat Aftershocks Leave Currency Markets Jittery

Currency markets are suffering a case of whiplash after Donald Trump yesterday denied a report saying that his aides were exploring plans to implement a narrower set of tariffs than had been promised on the campaign trail. The article in the Washington Post, which suggested that the incoming administration would impose selective rather than universal tariffs, triggered a 1-percent drop in the dollar, but was rebutted a little more than three hours later by the president-elect in a Truth Social post in which he called it “fake news”. The greenback ended the day down roughly 0.7 percent as traders adopted...

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Markets in the Fed’s hurt locker

• US Fed. Another rate cut was delivered but the US Fed signaled a shallower easing path ahead. US yields rose & the USD strengthened.• AUD & NZD. The stronger USD has seen the AUD & NZD tumble to levels last traded in Q4 2022. AUD also lost ground on most major crosses.• Overdone? A firmer USD is expected over H1 2025. But the extent of the post-US Fed reaction looks a little excessive, in our opinion. The US Fed was in the spotlight this morning, and adjustments made by policymakers have cascaded through markets. As expected, the US Fed...

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Commodity currencies under the pump

• Commodity FX. AUD, NZD, & CAD under pressure. AUD around levels last traded in November-2023. NZD touched a fresh ~2-year low.• Central banks. US Fed meets tomorrow, as does BoJ & BoE. Another Fed rate cut expected. Focus will be on its guidance & forecasts.• Already priced? Markets already factoring in fewer Fed rate cuts in 2025. It could be hard for the Fed to be more ‘hawkish’ than what’s priced. Central bank meetings will be the focus over the next few sessions with the US Fed (Thurs 6am AEDT), Bank of Japan (Thurs, no set time), and Bank...

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Central banks in focus this week

• Mixed messages. Softer tone in equities. Bond yields continue to push higher. USD treads water, with a firmer EUR offset by a weaker JPY.• AUD & NZD. NZD tracking around levels last traded in late-2022. AUD near 2024 lows. Will this run continue or will the USD pause for breath?• Event radar. The China data batch, global PMIs, and US Fed/Bank of Japan meetings are the key events to watch this week. The divergent market trends continued into the end of last week. Equities had another soft session with a large drop in China (CSI300 -2.4%) leading the way...

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