Overview: The US dollar is stabilizing most of the G10 currencies today after its recent losses. As the North American markets are set to open, the greenback is posting minor gains against the G10 currencies but the Japanese yen and Australian dollar. The news stream is light. The market has lifted the odds of a Bank of Japan rate hike later this month, while a jump in October household spending in Australia has sparked speculation in the futures market that the central bank will be hiking rates in a year. Most emerging market currencies are softer. In an unusual twist, the Indian rupee is the strongest after the central bank intervened, after it reached a record low. The PBOC set the dollar's reference rate at a new low since last October.
Equities are mostly firmer. The Nikkei jumped 2.3% in Japan to lead the region. Among the large bourses, South Korea's Kospi was the only one that did not rally today. In China, the CSI 300 rose but both the Shanghai and Shenzhen composites slipped. Europe's Stoxx 600 is posting its largest gain of the week (~0.3) and is rising for eighth session in the past nine. US index futures are virtually flat. Japanese bonds sold off, with the 10-year yield jumping four basis points, though the 30- and 40-year yields eased. European yields are slightly firmer, though the two-basis point decline in the 10-year Gilt is an outlier. The 10-year US Treasury yield is about 1.5 bp high to approach 4.08%. Gold is little changed around $4200. Meanwhile, January WTI is in the middle of the $58-$60 range that has dominated for the past several sessions.
USD: The Dollar Index's losses were extended yesterday in early North American activity on news of disappointing loss of 32k private sector jobs in November, according to ADP. It was the third loss of jobs in the past four months, and the 32k loss was the largest since mid-2020 and pandemic. After the initial low was recorded, slightly below 99.90, the Dollar Index held below 99.10 and fell to almost 98.80 in late North American dealings. It has barely traded above 99.00 today and re-tested the 98.80 area in Europe, which corresponds to the (38.2%) retracement of the rally since the September 17 low for the year. We are also monitoring the potential double top pattern that projects toward 97.70, while the (61.8%) retracement of the rally since September 17 is a little higher, around 97.80. More jobs data are on tap today with the Challenger Job Cuts and the weekly jobless claims. Tomorrow sees September personal income, consumption, and deflators, but the data is too dated to have much impact. The University of Michigan's preliminary consumer confidence and inflation expectations for December also will be reported.
EURO: The euro reached nearly $1.1680 yesterday, its best level since October 17, when it last traded above $1.17 and it has traded slightly above there today. The $1.1695 area is the (50%) retracement of the euro's losses since the year's high was recorded on September 17 (~$1.1920). A higher close today would extend the euro's rally for nine consecutive sessions. The daily momentum indicators are still constructive, though the euro has frayed the upper Bollinger Band, which is found near $1.1675 today. That said, the momentum stalled in the European morning and that 2.5 bln euro options struck at $1.1650 could come back into play before expiring at 10:00 AM ET. Meanwhile, the US two-year premium over Germany has drifted to a new low (~144 bp) since September 2024. Last year's low was about 135 bp and the 2023 low was around 112 bp. The flat October aggregate retail sales (reported in volume terms not price) continues the disappointing trend, though September's 0.1% decline was revised to a 0.1% gain.
CNY: The dollar fell to new lows since last October yesterday, reaching CNH7.0540 during North American hours. It is trading between CNH7.0560 and CNH7.0680 today, inside yesterday's range. The PBOC has been encouraging the move by setting the dollar's reference rate at lower and lower levels. Still, some newswires report that state-owned banks were buying dollars. Could it be that they have commercial activity to conduct and all their transactions in the foreign exchange market are not on behalf of the government (which we have long maintained)? The PBOC set the dollar's reference rate at CNY7.0733 (CNY7.0754 yesterday), a new low since last October. It has been lowered in eight of the past ten sessions. Still, we should keep the movement in perspective. Since April, when the current campaign appears to have begun, the dollar's reference rate has been reduced by almost 2%. This year, through yesterday, the onshore yuan has appreciated by about 3.35% and the offshore yuan has risen by around 4%. The inflation differential between the US and China is about 3%.
JPY: On Monday, the dollar traded between around JPY154.65 and JPY156.25. It has remained in that range for the past two sessions. It approached the lower end of the range in the European morning today. Yesterday was the first session since November 18 that the greenback did not trade above JPY156.00. It held above JPY155, albeit barely. The five-day moving average crossed above the 20-day moving average in early October and is slipping back below it in Europe today. A break of JPY154.65 targets the JPY153.55-65 area next. The daily momentum indicators are falling. Meanwhile, the weekly Ministry of Finance portfolio flow data showed that last week, Japanese investors were net sellers of about JPY675 bln of foreign assets (sellers of bonds and buyers of equities), while foreign investors bought 1.67 trillion of Japanese bonds and stocks).
GBP: Sterling set a four-day low on Tuesday near $1.3180. It recovered to almost $1.3355 in North America yesterday and has edged up to almost $1.3360 today. However, it is in a narrow range (~$1.3325-60) as the upside momentum stalls. Sterling settled above the 200-day moving average for the first time since late October and approached the (50%) retracement of the sell-off since the September 17 high (~$1.3725). Its 1% rally was the most since May. The next retracement (61.8%) is near $1.3450. The UK has four purchasing managers' surveys. The manufacturing and service PMIs in November, and the composite (output) were above the 50 boom/bust level. The construction PMI, however, remains depressed. It has not been above 50 this year and earlier today, the November reading came in at 39.4 (44.1 in October), a multi-year low.
CAD: The US dollar traded heavily against the Canadian dollar yesterday. The Antipodeans outperformed the Canadian dollar. The greenback held the November low set on the last session of the month a whisker below CAD1.3940. The CAD1.3935 area is the (50%) retracement of the US dollar's gains since the September 17 low (~CAD1.3725). The 200-day moving average is slightly below CAD1.3920. The Canadian dollar's gains were scored despite the poor data in the form of the services and composite November PMI. The services PMI fell to 44.3 from 50.5, the lowest since April. The composite PMI tumbled to 44.9 from 50.3, the lowest since June. So far today, the US dollar is trading quietly between about CAD1.3950 and CAD1.3970. The IVEY PMI will be released today, and it runs hotter than the S&P PMI. Still, the week's highlight is still to come November jobs data on Friday. The swaps market still is pricing as if the central bank's easing cycle has been concluded.
AUD: The Australian dollar poked above $0.6600 yesterday, for the first time since late October and met the (61.8%) retracement objective of the sell-off from the September 17 high (~$0.6705). The Aussie reached almost $0.6620 today. The Aussie is advancing for the ninth session in the past ten today. Although the daily momentum indicators are trending up, the Aussie settled above its upper Bollinger Band (~$0.6590) for the first time since mid-September. It comes in near $0.6610 today. The October high was around $0.6630. Australia reported October trade figures and household spending earlier today. The trade surplus rose to A$4.4 bln from a revised A$3.7 bln surplus in September (initially A$3.9 bln). The average monthly surplus this year is about A$4.0 bln (~A$5.7 bln average in the January-October 2024 period). Exports rose 3.4% in the month, and imports rose by 2.0%. Household spending soared 1.3% in October, 0.6%, the strongest monthly gain since September 2023. It was led by discretionary spending (1.6% vs. 0.1% in September and a flat August). The year-over-year increase rose to 5.6% from 5.1%. Pricing in the swaps and futures market is consistent with the end of the easing cycle. The futures market is pricing in a hike fully in Q4 26.
MXN: The dollar recorded yesterday's low against the Mexican peso in early North American turnover, slightly below MXN18.2470. It has not been lower in two months. It stabilized in uneventful turnover and mostly held below MXN18.28. It recovered to almost MXN18.30 today but has been sold to session lows in the European morning to slightly below MXN18.26. Mexico reported that vehicle sales surged (11.8%) in November after a 13.2% jump in October. Through November this year, Mexico auto and light truck sales are running slightly ahead of last year's pace. Many in the China hawk camp are concerned that Mexico has replaced Russia as the largest foreign market for Chinese cars. Yet, the story is more complicated as many of those Chinese-made cars are US brands. The data does not break "ownership" out but reporting on GM’s strategy in Mexico finds, for example, that a very high share of Chevrolet sales in Mexico—around two thirds to over 70 percent in recent years—comes from vehicles sourced from China, which implies that U.S. brands are major users of China based production for the Mexican market.
Reviewed by Marc Chandler
on
December 04, 2025
Rating:
