US dollar rises, Aussie drops after Chinese trade data

NEW YORK – The dollar rose on Tuesday ahead of US inflation data that could offer clues about the Federal Reserve’s monetary-easing path, while analysts assess the likely impact of President-elect Donald Trump’s policies when he begins his second term.

The Australian dollar dropped sharply against the US dollar as the Reserve Bank of Australia softened its tone on the inflation outlook. Its rally the day before sparked by China stimulus pledges also tapered off after weak Chinese trade data.

Money markets are pricing an 86% chance of a 25-bps rate cut by the US Federal Reserve next week, but investors will still be looking closely at an expected readout of Consumer Price Index data on Wednesday.

“Obviously the market’s kind of nervous about a stronger print, which might lead to a slightly more hawkish outlook on the Fed, or maybe a little bit of a repricing,” said Brad Bechtel, global head of FX at Jefferies. “I think the market is looking to see if CPI influences the decision on the December meeting, which right now is pretty much close to 100% priced, but not 100% priced.”

The US dollar rose 0.47% to 151.925 yen. The dollar index, which measures the currency against the yen and five other major peers, rose 0.23% to 106.4.

Market participants see little action before a busy second half of the week with the US data and European Central Bank policy meeting.

An ECB quarter-point cut is baked in, but investors will focus on the communication, which could provide clues about the central bank’s future moves.

The euro dropped 0.27% to USD 1.0526.

The Aussie fell 0.93% to USD 0.6381, after earlier dropping to its lowest level since August.

It rose 0.8% the previous day after China pledged an “appropriately loose” monetary policy next year.

“If we can get Chinese stocks to rally, China-sensitive commodities like copper to rally, that could depress the US dollar a little bit,” said Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull. “You can feel there’s a lot of pressure over there to do something.”

China’s exports grew at a slower pace in November, while imports unexpectedly shrank, affecting expectations for the Australian economy, as China is its largest trading partner.

Chinese equities eased gains while Hong Kong stocks declined as the initial optimism over Beijing’s policy shift faded.

The RBA held rates steady as expected, but noted the board had gained “some confidence” inflation was heading back to target.

“A full pricing-in (of a rate cut) over the next few weeks would weigh further on the Australian dollar,” said Volkmar Baur, forex strategist at Commerzbank, recalling that two labour market reports and the inflation figures for the fourth quarter will be published before the next policy meeting in February.

The New Zealand dollar dropped in sympathy with the Aussie, declining 1.1% to USD 0.5801.

Investors will closely watch China’s closed-door Central Economic Work Conference this week, which sets key targets and policy intentions for next year.

The yuan was last at 7.2602 per dollar in offshore trading, supported by Monday’s surprise shift in Beijing’s monetary policy stance toward more easing to boost the ailing economy.

Elsewhere, the Bank of Canada and the Swiss National Bank decide policy on Wednesday and Thursday, respectively, with deep rate cuts expected from both.

Against Canada’s loonie, the US dollar rose to its strongest level since April 2020 at CUSD 1.4165.

(Reporting by Hannah Lang in New York; additional reporting by Stefano Rebaudo;
Editing by Rod Nickel and Matthew Lewis)