Headlines:
- China is considering to allow the yuan to weaken next year as trade risks loom - report
- AUD/USD tests the August low as China considers letting the yuan depreciate further
- BOJ reportedly sees little cost to waiting for next rate hike
- USD/JPY sent for a spin but now moving higher as BOJ rate hike odds fade
- What is the distribution of forecasts for the US CPI?
- RBA's Hauser: Direct impact of any US tariffs on Australia likely to be limited
- RBA's Hauser: There is no particular trigger figure for inflation for us to ease policy
- US MBA mortgage applications w.e. 6 December +5.4% vs +2.8% prior
- Biden administration to unveil more tariffs in parting gift to China
- German chancellor Scholz set to put in request for confidence vote later today
Markets:
- USD and CAD lead, JPY lags on the day
- European equities mixed; S&P 500 futures up 0.1%
- US 10-year yields up 2.5 bps to 4.245%
- Gold up 0.1% to $2,695.83
- WTI crude up 1.5% to $69.59
- Bitcoin up 1.5% to $98,395
The dollar was an indirect beneficiary in what was an unusually less quiet run up to the US CPI report later today.
The first main headline involved China, in which Reuters reported that Beijing is considering to weaken the yuan next year in order to combat against Trump's tariffs. That saw the yuan weaken and spilled over to weakness in the antipodes, with the aussie and kiwi sent to its lowest levels this year against the dollar.
The big picture outlook sees China potentially reigniting currency wars especially if they are to allow the yuan to weaken significantly in the months ahead. That especially since most analysts are anticipating that Beijing would require a 10-12% drop in the yuan to offset the roughly 60% tariffs touted by Trump.
It will be interesting to see how other Asian currencies might respond to all this as well in due time.
In any case, the dollar rose across the board and USD/JPY traders were vindicated after a report from Bloomberg said that the BOJ might be okay with sitting on the sidelines at next week's policy meeting.
The pair was sent for a spin as it fell to 150.99 on the headline before quickly recovering to 151.90 and then extending gains to around 152.65 currently. Of note, the jump sees the pair now contesting a break above its 200-day moving average of 151.98.
Elsewhere, the dollar is seeing modest gains with EUR/USD flirting with the 1.0500 mark and GBP/USD down 0.3% to 1.2730 on the day.
Despite the headlines, broader markets were less jumpy as US futures remain more tentative awaiting the US CPI report next. After two days of losses, investors will be eyeing the inflation numbers later to sort out their feet for the remainder of the week.
In the commodities space, gold continues to keep steadier close to $2,700 as the run higher this week holds for the time being.
Let's see what the US CPI report will bring in the session ahead. Oh, not forgetting the upcoming 50 bps rate cut by the BOC as well of course.
