ADP, ISM non-mfg PMI, and job openings enter the spotlight
German and French CPI data weigh on the euro
Aussie extends uptrend as sticky inflation fuels hike bets
Wall Street climbs at record highs, oil tumbles after Maduro’s arrest
US data to influence Fed rate cut expectations
The US dollar gained against most of its major peers on Tuesday, staying on the back foot only against the Australian dollar. However, today, the greenback is trading mixed with the aussie extending its rally to its highest since October 2024, before pulling back.
Dollar traders paid little attention to the capture of Venezuelan President Maduro by the US over the weekend, keeping their gaze locked on upcoming data, including Friday’s nonfarm payrolls for December.
Following the less hawkish than expected Fed decision, the slowdown in inflation and signs of further weakness in the labor market, despite decent NFP prints for October and November, investors remain convinced that the Fed may need to proceed with more than two quarter-point rate cuts this year, despite the Fed’s own dot plot pointing to only one.
The median dot for 2026 was the result of a split community, as four members voted for no cuts this year, four favored one, and another four officials wanted two. The division was evident yesterday as well. Richmond Fed President Barking said that rate changes will need to be “finely tuned” to incoming data, given the risks to both the labor market and inflation, while Fed Governor Miran insisted that interest rates need to be cut aggressively. Minneapolis Fed President Kashkari leaned to the dovish side as well, noting that he sees a risk of the unemployment rate drifting even higher.
Today, the focus will fall on the ADP private employment report for December, the ISM non-manufacturing PMI for the same month and the JOLTS job openings for November. On Monday, the manufacturing PMI slipped further into contractionary territory but its employment sub-index improved somewhat. What’s more, the weekly ADP releases have been pointing to notable improvement in the 4-week moving average of private payrolls compared to November, suggesting that the risks of today’s release may be titled to the upside. Indeed, the forecast is pointing to a rebound of 49k jobs gain from a 32k loss in November.
Accompanied with relatively upbeat ISM and JOLTS reports, this could allow the US dollar to rebound again as investors scale back some basis points worth of rate reductions for this year. However, they are unlikely to drastically reposition as they may be waiting for the more important release of Friday’s NFP report.
Euro slides on softer inflation numbers, Australian CPIs boost aussie
The euro came under pressure and is extending its slide today, hurt by the slowdown in German and French inflation for December. Although the data did not spark rate cut bets due to the ECB’s “we are in a good place” mantra and the upward revisions of its growth and inflation projections, they suggested officials have very little reason to start thinking about rate hikes now. Today, the preliminary data for the whole Eurozone are coming out and should they confirm yesterday’s numbers, the euro could drift further north.
The all-mighty aussie received extra fuel overnight as the Australian CPI data reinforced speculation that the RBA may start considering raising interest rates soon. Although headline inflation came in weaker than expected, underlying metrics were little changed, staying above 3%.
Following the latest RBA decision, where officials discussed when it may be appropriate to start raising interest rates, the data prompted traders to assign a decent 35% chance of a quarter-point hike at the Bank’s upcoming gathering in February. A 25bps rate increase is fully priced in by May. This marks a strong divergence in monetary policy expectations between the RBA and the Fed and suggests that there is ample room for traders to drive the aussie/dollar pair higher.
Stocks cheer AI headlines, oil slides on geopolitics
On Wall Street, all three of its main indices traded in the green yesterday, with the S&P 500 and the Dow Jones Industrial average hitting fresh record highs. The main driver was again advances in technology and semiconductor stocks with comments from Nvidia’s executive Huang bolstering optimism about AI investments and demand. Huang said that upcoming AI processors will feature a new layer of storage technology, aimed at handling much more complex workloads.
Oil prices have been tumbling since yesterday, perhaps on headlines that, following the capture of Maduro by the US, Caracas and Washington agreed to export up to 2bln dollars of Venezuelan oil to the US, raising speculation that – at some point in the future – the US might ease crude-related sanctions and perhaps allow firms to invest in Venezuela’s reserves.