Key Takeaways
- The Trump-Xi summit lowered the immediate risk of renewed US-China trade escalation, although several disputes remain unresolved ahead of the next trade-truce deadline on 10 January 2027.
- Oil prices and US Treasury yields remain key market drivers as traders assess whether higher energy costs could keep inflation elevated and encourage further Federal Reserve tightening.
- The Reserve Bank of Australia comes into focus on Tuesday, with market reports forecasting a 25-basis-point increase in the cash rate from 4.35% to 4.60%.
- US Core PCE, JOLTS job openings and Friday's Non-Farm Payrolls report could reshape expectations for US interest rates.
- Traders are watching USDX, XAUUSD, USOIL, USDJPY and AUDUSD as markets position around inflation, employment and central-bank policy.
US President Donald Trump and Chinese President Xi Jinping continued discussions between the world's two largest economies, while the existing trade truce was extended until 10 January 2027. The meeting also produced agreements covering tariffs and trade, including Chinese commitments to increase purchases of US coal.
However, several deeper disputes remain unresolved, including rare earth export controls, technology restrictions and geopolitical tensions surrounding Iran and Taiwan.
For markets, the immediate risk of another US-China tariff escalation has eased. Attention may now return towards oil prices, Treasury yields and whether incoming economic data reinforces expectations for further monetary tightening.
Why Traders Are Watching Global Markets
The easing of immediate US-China trade tensions removes one source of market risk, but monetary policy could play a larger role in determining direction this week.
US Treasury yields climbed to multi-decade highs last week as investors responded to elevated energy prices, resilient economic activity and concerns that inflation could remain above the Federal Reserve's target.
Oil prices also remain important. Crude pulled back on Friday as hopes of progress between the United States and Iran reduced some supply concerns. However, renewed strength in oil could push inflation expectations and Treasury yields higher again.
The Federal Reserve has already raised its policy range by 25 basis points to 3.75%-4.00% this month, while 16 of 18 policymakers projected at least one additional increase before the end of 2026.
Australia also enters focus on Tuesday. Reports indicate the Reserve Bank of Australia could raise its cash rate from 4.35% to 4.60% as inflation pressure, higher energy costs and hawkish policy communication strengthen the case for further tightening.
US economic data then takes over, with JOLTS job openings, Core PCE and Friday's Non-Farm Payrolls report providing fresh evidence on inflation and labour-market conditions.
Key factors influencing markets include:
- Federal Reserve policy: Strong inflation and employment data could reinforce expectations for another rate increase, while weaker readings could challenge the current tightening outlook.
- RBA policy: A 25-basis-point rate increase is expected on Tuesday, with traders watching whether policymakers signal that further tightening remains possible.
- US labour data: JOLTS and Non-Farm Payrolls could determine whether the labour market remains strong enough to withstand higher interest rates.
- Treasury yields: Further increases could support USDX while creating additional pressure for gold and rate-sensitive equities.
- Oil prices: Another sustained rise in crude could reinforce inflation concerns, while a deeper correction could ease some pressure on yields.
Key Movements of the Week
USDX
USDX traded lower from the 101.25 monitored area, although more price action may be needed to determine whether the index is ready to extend its decline.
-Price could consolidate around current levels, similar to the structure seen towards the end of August.
-A move higher and break above 101.473 could develop before sellers regain control.
USDJPY
USDJPY traded lower from the previously monitored 158.75 area.
-Continued weakness could bring 156.57 into focus.
-If price instead moves higher, traders can monitor for bearish price action around 160.25, which could become an important area for USDJPY.
AUDUSD
AUDUSD is trading around the 0.7000 monitored area ahead of Tuesday's RBA decision.
-Continued weakness could bring 0.6955 into focus.
-If consolidation develops before a recovery, traders can monitor for bearish price action around 0.7110 or 0.7130.
What to Watch Next
The RBA rate decision on Tuesday begins a busy week for monetary policy and economic data. A 25-basis-point increase to 4.60% could support AUDUSD if policymakers keep the possibility of further tightening open, while more cautious guidance could limit the Australian dollar's response.
Attention then shifts towards the United States. JOLTS job openings, Core PCE and Friday's Non-Farm Payrolls report could determine whether markets strengthen expectations for another Fed rate increase. Strong employment combined with firm inflation could support USDX and Treasury yields while increasing pressure on XAUUSD. Weaker labour data alongside softer inflation could produce the opposite reaction.
Oil remains another variable. A renewed rally could lift inflation expectations and Treasury yields, while a deeper correction could ease some of that pressure.
For a deeper analysis of the week ahead, upcoming economic events and technical levels across key markets, read the full article here.