Dollar steady as AUD pops on RBA tightening hints; yen slips as BoJ watches yields
The dollar opened the North American session broadly unchanged, but FX traders leaned into the Aussie after the RBA flagged a live tightening risk into early 2025, while the yen softened as the Bank of Japan signaled vigilance over rising long-term yields.
FX snapshot: USD range-bound, AUD firm, yen on back foot
– EUR/USD, GBP/USD and USD/CHF hovered within a pip of flat, underscoring a muted start for the greenback.
– USD/JPY rose about 0.2% as the pair extended its rebound from late last week, reflecting a softer yen amid guarded BoJ commentary.
– AUD/USD outperformed, up roughly 0.2% after the RBA signaled it may need to tighten if inflation proves sticky.
RBA keeps powder dry, puts February in focus
RBA Governor Michele Bullock kept rates on hold but underscored that the Board actively discussed scenarios where further tightening might be required, particularly if inflation persistence becomes clearer. She cautioned against over-reading monthly CPI and said upcoming inflation and labor data—especially the quarterly CPI—will be pivotal for the February meeting.
Bullock emphasized rate cuts are not on the horizon, with upside risks to inflation now greater and the Board still uncomfortable with price pressures. Markets nudged up the odds of a March rate hike to around 45%, and the AUD firmed as traders priced a higher-for-longer stance. BPayNews analysis: the AUD’s resilience reflects rising rate-path optionality paired with a still-consumption-resilient domestic backdrop.
BoJ signals vigilance on yields; policy tone subtly shifts
BoJ Governor Kazuo Ueda noted the rapid rise in long-term JGB yields and said the Bank stands ready to increase JGB purchases to curb abrupt moves. He stressed that real rates remain very low and that any adjustment to ultra-easy policy still hinges on the outlook for growth and prices aligning with forecasts.
Ueda expects Japan’s economy to return to positive growth in Q4, while monitoring wage plans and the impact of food inflation and yen weakness on expectations. The message is moderately hawkish around the edges—acknowledging firming wage-price dynamics—yet keeps policy normalization contingent and gradual. The yen eased as markets interpreted the comments as steady-hands rather than pre-committing to December action.
Treasuries and equities: calm tone supports risk
U.S. rates were mixed to slightly lower at the open, with the 10-year yield near 4.16% and small declines further out the curve, a setup that tends to cool broad USD momentum. Stocks were little changed, with the Dow modestly higher, the S&P 500 up slightly, and the Nasdaq fractionally negative—typical of a wait-and-see session ahead of key labor data.
Commodities and crypto
Crude was broadly steady, while gold and silver edged higher as softer real yields lent a mild bid to precious metals. Major cryptocurrencies were little changed.
What traders are watching
– U.S. ADP employment data at 08:15 ET for a read on private payrolls and wage dynamics.
– Australia’s quarterly CPI and labor figures ahead of the RBA’s February meeting.
– Japan wage settlements and JGB market behavior into the BoJ’s December 19 decision.
– Dollar-yen sensitivity to yield spreads as U.S. rates drift and BoJ signals flexibility on JGB purchases.
Key points
- USD broadly flat; EUR/USD, GBP/USD, USD/CHF near unchanged.
- USD/JPY extends rebound; yen soft as BoJ monitors yields and stands ready to add JGB buys.
- AUD/USD climbs after RBA signals tightening could be required; rate cuts off the table.
- Rates market prices roughly 45% chance of RBA hike by March; February seen as critical waypoint.
- U.S. yields mixed to lower; stocks little changed as traders await labor data.
- Precious metals firmer on softer real yields; oil steady.
FAQ
Why did AUD/USD rise today?
The Aussie gained after RBA Governor Bullock warned that further tightening could be needed if inflation persists, while ruling out rate cuts. Markets lifted the probability of a hike by March, supporting AUD/USD.
What did the BoJ signal and how did it affect USD/JPY?
Governor Ueda said the BoJ is watching the rapid rise in long-term yields and could increase JGB purchases to counter abrupt moves. He also noted real rates remain very low. The tone kept policy changes contingent, which softened the yen and pushed USD/JPY higher.
Are rate cuts on the table in Australia?
No. The RBA emphasized that rate cuts are not on the horizon and that upside inflation risks have grown, keeping a tightening bias alive if data warrant.
How are U.S. yields shaping FX sentiment?
With the 10-year near 4.16% and a slightly softer long end, real yields eased a touch, tempering broad dollar strength and supporting carry and risk-sensitive FX like AUD and some EM pairs.
What are the key near-term catalysts?
U.S. ADP at 08:15 ET, Australia’s quarterly CPI and labor prints ahead of the RBA’s February meeting, and the BoJ’s December 19 decision with a focus on wage trends and JGB market stability.
