Currencies in Focus: Central Bank Actions and Currency Trends

Asia markets respond to BoJ’s CPI data, Dollar decline, gold’s rise, major currencies in focus: central bank actions and currency trends unveiled.

In the Asia session, the Bank of Japan (BoJ) unveiled its core Consumer Price Index (CPI) figures, showing a drop to 2.7% YoY in November from the previous month’s 3.0%. Since April this year, this marks the first instance that the core CPI has dipped below the 3.0% YoY threshold. The decline in inflationary pressures could reinforce the BoJ’s commitment to its ultra-dovish monetary policy stance, potentially impacting the USD/JPY positively.

Europe & US Sessions Outlook: Trading Volume Subdued on Boxing Day

As most European markets are closed for Boxing Day, traders anticipate subdued trading volume and average daily range for many currency pairs, mirroring the calm observed during the Asia session. The Dollar Index (DXY) is weakening amid declining US inflation and growing expectations of a dovish Federal Reserve.

Dollar Index (DXY): Anticipated Decline Amidst Weakening Inflation and Dovish Fed Outlook

The DXY has experienced a decline in five of the last six weeks, shedding nearly 4.2% or 410 pips. The ongoing slide in US inflation and the prevailing sentiment of a dovish Federal Reserve contribute to a diminished demand for the dollar, indicating a potential further drift lower.

Central Bank Notes: Federal Reserve Holds Rates Amidst Inflation Concerns

For the third consecutive meeting, the Federal Reserve maintained the Federal Funds Rate target range at 5.25% to 5.50%. The Committee emphasized its commitment to achieving maximum employment and a 2.0% inflation rate over the longer run. The Federal Reserve has scheduled its next meeting for January 30-31, 2024.

Gold (XAU): Elevated Prices Expected Amid Dollar’s Descent

Gold prices surged to $2,070/oz last week, propelled by falling PCE inflation data in the US. Despite a price retreat to $2,053/oz by the week’s end, the expectation is that gold will maintain its elevated status as demand for the dollar diminishes.

Currencies in Focus: Central Bank Actions and Currency Trends

Australian Dollar (AUD): Strength Persists as RBA Maintains Cash Rate

The Australian Dollar reached a high of 0.6826 last week, reflecting a 6.5% gain against the dollar over the past seven weeks. The Reserve Bank of Australia (RBA) kept the cash rate target at 4.35%, marking the fifth pause out of the last six meetings. The AUD will likely remain elevated as the final trading week of 2023 unfolds.

Kiwi Dollar (NZD): Sustained Strength Amidst Unchanged OCR

The New Zealand Dollar reached 0.6318 last week, showcasing an 8% gain over the past eight weeks. The Reserve Bank of New Zealand’s Monetary Policy Committee held the Official Cash Rate (OCR) steady at 5.50% for the fourth consecutive meeting. Investors anticipate the Kiwi will maintain its strength into the final trading week 2023.

Japanese Yen (JPY): BoJ’s CPI Release Indicates Easing Inflationary Pressures

The Bank of Japan (BoJ) disclosed its core CPI figure, revealing a decline to 2.7% YoY in November from the previous month’s 3.0%. This marks the first time since April that the core CPI has fallen below 3.0% YoY. The BoJ’s ultra-dovish monetary policy may receive further affirmation, potentially benefiting USD/JPY.

Euro (EUR): Elevated Performance Likely to Continue

The Euro reached a high of 1.1041 last week, reflecting a 4.2% gain over the past eight weeks. Despite a slight pullback, Analysts anticipate the Euro will remain strong as the final trading week of 2023 unfolds. The European Central Bank (ECB) kept key interest rates unchanged, focusing on a data-dependent approach.

Swiss Franc (CHF): USD/CHF Under Selling Pressure

USD/CHF remains under selling pressure after falling below the 0.8600 threshold. Last Friday, the currency pair reached a low of 0.8515 and is anticipated to persist in its drift lower. The Swiss National Bank (SNB) maintained the policy rate at 1.75%, forecasting weak GDP growth and subdued inflation.

British Pound (GBP): Volatility Persists Amid MPC Decision

The Pound reached 1.2760 last Wednesday before fluctuating between 1.2620 and 1.2750. The Bank of England’s Monetary Policy Committee (MPC) voted 6-to-3 to maintain the Official Bank Rate at 5.25%. Despite persistent CPI inflation, the Pound could face downward pressure in today’s trading.

Canadian Dollar (CAD): Downward Pressure on USD/CAD Continues

The Canadian Dollar has significantly gained ground against the US Dollar, pushing USD/CAD below the 1.3300 threshold. The Bank of Canada held the overnight rate at 5.0%, emphasizing a policy of quantitative tightening. The market expects further downward pressure on USD/CAD.

Oil: Crude Prices Surge on Red Sea Drone Attacks

Crude oil prices recorded their most significant gain since early October, rising nearly 3% last week. WTI oil breached the $75 per barrel mark due to drone attacks in the Red Sea. As Asian markets open, crude oil is actively trading around $73.60, and analysts anticipate it will remain elevated throughout the day.

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