The U.S. dollar edged slightly higher in cautious trading on Monday as investors awaited key U.S. inflation data scheduled for release this week. Meanwhile, the Australian and New Zealand dollars rose after China announced plans to adopt a more accommodative monetary policy next year to support economic growth.
Market expectations for a quarter point interest rate cut by the Federal Reserve at its upcoming meeting remain strong, particularly following a recent uptick in the U.S. unemployment rate to 4.2%. Despite a surge in job growth in November, the higher unemployment rate signals a cooling labor market, which could give the Fed room to ease monetary policy further.
The dollar index rose by 0.18% to 106.14. The euro weakened slightly against the dollar, trading at $1.0554, while the greenback gained 0.77% against the yen, reaching 151.24. In contrast, the Australian dollar climbed 0.82% against the U.S. dollar, and the New Zealand dollar rose 0.58%. These gains followed China’s announcement of a more growth focused monetary policy, which also strengthened the offshore yuan, leaving the dollar down 0.26% at 7.2670 yuan.
China’s leadership indicated plans to implement “appropriately loose” monetary policies alongside proactive fiscal measures in 2024, according to state media reports. These measures aim to boost economic activity and include “unconventional” counter cyclical adjustments. Analysts noted that this policy announcement was well received by markets, reflecting optimism about global growth prospects.
South Korea’s won fell against the dollar, which rose by 0.44%, following domestic political developments. South Korean President Yoon Suk Yeol survived an impeachment vote in parliament after a controversial move to impose martial law last week. Broader geopolitical developments, including events in Syria and other macroeconomic factors, also contributed to cautious trading sentiment.
Looking ahead, markets are focusing on several central bank meetings this week. The European Central Bank is widely expected to announce a quarter point interest rate cut on Thursday, while the Bank of Canada and Swiss National Bank are also anticipated to make deep rate cuts. These decisions could widen yield differentials, pressuring their respective currencies. Meanwhile, China’s closed door Central Economic Work Conference is expected to shed more light on its economic strategy for the coming year.
The Canadian dollar neared a 4.5 year low on Monday, reflecting market anticipation of another large interest rate cut. Analysts suggest that shifting monetary policy from major central banks, coupled with rising political risks and key economic data, could result in significant currency movements in the days ahead.
