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• AUDCAD rebounds after consolidating near key uptrend line
• RSI and MACD are suggesting that momentum may be turning positive
• A break above 50-day EMA could confirm more advances
• For the outlook to darken, a dip below 0.9015 may be needed

AUDCAD rebounded on Tuesday, after hitting support near the uptrend line drawn from the low of September 27, 2023, and the 200-day exponential moving average (EMA). Although the pair corrected decently after hitting a 21-month high of 0.9375 on September 30, the latest rebound keeps the broader uptrend intact.

The RSI and the MACD support the case for some more advances in the short run. The former has turned up and looks ready to cross above 50, while the latter, although negative, has already crossed above its trigger line.

If the bulls manage to climb above the 50-day EMA, they may feel confident to push the action towards the 0.9305 zone, or the 21-month high of 0.9375. That said, a break higher may be a stronger bullish signal as it would confirm a higher high on the weekly chart. Such a move could pave the way towards the 0.9550 zone, marked as resistance by the high of January 26, 2023.

For the outlook to turn bearish, the price may need to fall below 0.9015.  Such a dip would not only solidify the break of the aforementioned uptrend line, but also confirm a lower low. The bears may then be encouraged to dive all the way down to the low of August 5 at 0.8855.

To recap, AUDCAD has been trading above a solid uptrend line since September 2023, and just this week, it rebounded after consolidating for a while near that zone. This keeps the broader outlook cautiously positive.

The New Zealand dollar is in positive territory on Tuesday, after a four-day losing streak. In the European session, NZD/USD is trading at 0.5850, up 0.09% on the day. Earlier, the New Zealand dollar fell as low as 0.5797, its lowest level since Nov. 1.

RBNZ expected to slash rates by 50 basis points

The Reserve Bank of New Zealand makes its rate announcement on Wednesday and the markets have priced in a jumbo rate cut of a 50 basis point for a second straight meeting. This would bring the cash rate to 4.25%, its lowest level since November 2022.

The RBNZ has done a good job of lowering inflation, which fell to 2.2% in the second quarter. This is the first time in over three years that inflation is within the target band of between 1 and 3 percent. Still, elevated rates have taken a heavy toll on the economy, as GDP declined 0.2% in the second quarter and likely fell in Q3 as well, which would mark a recession. The central bank’s aggressive rate-cutting is aimed at providing the economy with a much-needed boost.

The New Zealand dollar stands to be the big loser from an oversized rate cut. The currency plunged around 1% after the 50-bp chop in October and we could see another sharp drop on Wednesday if the central bank cuts again by 50 bp.

Will Fed minutes provide clues ahead of December meeting?

The Federal Reserve releases the minutes of the November meeting later today. At the meeting, the Fed lowered rates by 25 basis points. Investors will be looking for insights about what the Fed may have planned for the Dec. 18 meeting. A few weeks ago, a second straight 25-bp cut appeared likely but with the US economy remaining strong, the Fed may opt to pause. Interest-rate future markets are currently pricing in a cut at 59% and a pause at 41%, according to the CME’s Fed Watch.

NZD/USD Technical

• NZD/USD is testing resistance at 0.5857. Above, there is resistance at 0.5898
• There is support at 0.5793 and 0.5752

Markets

This morning, (Asian) markets were ‘unsettled’ as US president-elect Trump via his ‘Truth’ social network announced additional tariffs on Canada and Mexico (25%) as he assesses they don’t do enough to stop what he calls the ‘invasion of drugs’ and ‘illegal aliens’ into the US. Also China will face an additional levy of 10% for not doing enough to stem the inflow of drugs and migrants to the US. At first instance, the announcement of these rather unexpected, basically non-economically driven tariffs firmly questioned yesterday’s market hope that the nomination Scott Bessent as US Treasury Secretary could be a harbinger of a more pragmatic approach from the Trump 2.0 administration. In a first reaction US yields and especially the dollar tried to reverse some of yesterday’s setback, but as was the case recently, the Trump trade (higher yields and higher dollar) failed to regain full momentum. US yields currently adds between 1.0/2.0 bps. In an interview on Bloomberg, Fed’s Kashkari indicated that tit-for-tat action on tariffs could be inflationary, but he still saw it reasonable to consider a December rate cut. Europe wasn’t directly affected by the Trump tariffs but he still has plenty of time to also reshape its trading relationship/practices with the EU. At least for now, further declines in EMU yields were limited. German currently show changes of less than 1 bp across the curve. European equities show most declines (EuroStoxx 50 -0.35%). US indices open mixed.

After finishing this report, the US consumer confidence (Conference Board) and the Minutes of the previous Fed meeting will be published. The US Treasury will sell $70 bln 5-y Notes.

On FX markets, the dollar failed to hold a brief ‘Trump-related’ spike higher at the opening. DYX trades little changed in a daily perspective (106.9) and this is also the case for EUR/USD (1.0495). The yen again outperforms with USD/JPY trading near 153.5 (from 154.23). The Canadian Loonie was hit the hardest by the Trump tariff announcement. USD/CAD is trading north of 1.41; at levels not seen since spring 2020. The Mexican peso (MXN) is also facing an uphill battle, but USD/MXN (20.583) for now holds just below the TYD top (20.8 area).

News & Views

Deputy governor of Sweden’s Riksbank Anna Seim touched on the topic of the neutral rate during a central bank seminar. Despite the inherent uncertainties associated with this theoretical construct, central banks use it as a gauge to help determine whether policy settings are either stimulative or restrictive. An update of the estimated level was due since the last one dated from 2017. Based on international studies, other central bank studies, pricing and surveys from financial markets and model-guesstimates, Seim concluded that “The long-term neutral interest rate, and thus the long-term normal policy rate, is probably between 1.5 and 3 per cent.” This is one percentage point lower than the 2017 range, meaning the Riksbank assumes it to remain near historically low levels. Seim’s message contrasts with the likes of the Bank of Canada, the Federal Reserve and the central bank of New Zealand. All of them raised their estimates. The deputy governor holds the view “that there is little to indicate that we are in a completely new world where the neutral interest rate has risen sharply, or will do so in the near future.” The implications for monetary policy are that policy rates around zero or even negative again cannot be ruled out in cases when inflation is far below target. Seim’s analysis paints a bleaker longer-term outlook for the Swedish krona as it offers the central quite some leeway to lower rates further from the current 2.75%. Money markets discount <100 bps of rate cuts over the next four meetings.

Hungary’s GKI business confidence index fell by more than 2 points in November to a 17-month low of -11.3. The outlook deteriorated in all four sectors surveyed, led by industry and construction. Trade remained the most pessimistic, services sector the least. The predictability of the business environment deteriorated to a 2-yr low. Price increase plans in the business sector increased noticeably compared to the previous month, rising to an 11-month high. The simultaneously published consumer confidence index decreased to a 12-month low on sharply increased dissatisfaction from households with their financial situation over the past 12 months. Views for the year ahead deteriorated somewhat, potentially on a significant uptick in inflation expectations. Perceptions of Hungary’s economy 12 months ahead were about the same. The economic sentiment indicator, which combines business and consumer confidence, dropped to the weakest level since October last year. A deteriorating (business) eco outlook and price rising expectations paints a stagflationary picture which may have originated from the recent sharp HUF depreciation. EUR/HUF today jumped to 411, matching the recent November 2-yr highs.

US Conference Board Consumer Confidence Index increased to 111.7 in November, up from 109.6 in October, though slightly below the expected 112.0. Present Situation Index, which reflects consumers’ views on current economic conditions, saw a significant rise of 4.8 points to 140.9. Expectations Index, measuring consumer outlook for the next six months, inched up by 0.4 points to 92.3.

Dana M. Peterson, Chief Economist at The Conference Board, noted that “consumer confidence continued to improve in November and reached the top of the range that has prevailed over the past two years.”

The improvement was primarily driven by stronger consumer sentiment regarding the labor market, with future job availability optimism reaching its highest level in nearly three years.

However, expectations for future business conditions remained steady, and consumers were slightly less optimistic about future income prospects.

Full US consumer confidence release here.

Daily Pivots: (S1) 1.0453; (P) 1.0492; (R1) 1.0534; More...

Intraday bias in EUR/USD remains neutral and outlook is unchanged. More consolidations could be seen above 1.0330 temporary low but further decline is expected as long as 1.0609 resistance holds. On the downside, sustained trading below 1.0404 key fibonacci level will carry larger bearish implication and target next level at 161.8% projection of 1.1213 to 1.0760 from 1.0936 at 1.0203. However, firm break of 1.0609 will confirm short term bottoming, and turn bias back to the upside for 1.0760 support turned resistance first.

In the bigger picture, immediate focus is now on 50% retracement of 0.9534 (2022 low) to 1.1274 at 1.0404. Strong rebound from this level will keep price actions from 1.1273 (2023 high) as a medium term consolidation pattern only. However, sustained break of 1.0404 will raise the chance that whole up trend from 0.9534 has reversed. That would pave the way to 61.8% retracement at 1.0199 first. Firm break there will target 0.9534 low again.

Daily Pivots: (S1) 1.2536; (P) 1.2575; (R1) 1.2608; More...

Intraday bias in GBP/USD remains neutral and more consolidations would be seen above 1.2486. Further decline is expected as long as 1.2713 resistance holds. On the downside, break of 1.2486 will resume the fall from 1.3433 to 1.2298 cluster support zone.

In the bigger picture, a medium term top should be in place at 1.3433, and price actions from there are correcting whole up trend from 1.0351 (2022 low). Deeper decline is now expected as long as 55 D EMA (now at 1.2893) holds, to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.

Daily Pivots: (S1) 0.8835; (P) 0.8877; (R1) 0.8905; More…

Intraday bias in USD/CHF stays neutral and more consolidations would be seen below 0.8956. Outlook will continue to stay bullish as long as 0.8800 support holds, in case of retreat. Break of 0.8956 will resume the rally from 0.8374, and target 0.9223 key resistance next.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

Daily Pivots: (S1) 153.58; (P) 154.15; (R1) 154.75; More...

USD/JPY's break of 153.27 minor support suggests that correction from 156.74 is extending lower. Intraday bias is back on the downside for 38.2% retracement of 139.57 to 156.74 at 150.18. For now, risk will stay on the downside as long as 156.74 resistance holds, in case of recovery.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Dollar is losing some ground as markets enter into US session, as the initial support from US President-elect Donald Trump’s tariff announcement dissipated. Although the greenback softened broadly, it is still holding onto gains against Loonie and Aussie, with traders as Trump’s tariffs are targeting Canada, China, alongside Mexico.

Market focus now turns to FOMC minutes, with traders eager to gauge sentiment among policymakers ahead of December’s rate decision. Currently, Fed fund futures indicate a 60% probability of a 25bps rate cut, but recent commentary from Fed officials has left room for doubt. The minutes may provide insight into how aligned policymakers are on easing monetary policy further or maintaining caution.

In terms of currency performance, Yen leads as the strongest performer of the day. Sterling and Euro also showed some mild strength. Meanwhile, Loonie is the weakest, pressured by trade concerns, followed by Aussie and Dollar. Swiss Franc and Kiwi are holding relatively neutral positions.

Looking ahead, the Asian session will bring two key events: RBNZ rate decision and Australia’s monthly CPI release.

RBNZ is widely expected to implement another 50bps rate cut, bringing the policy rate to 4.25%. Traders will closely examine the updated economic projections, particularly regarding additional policy easing in 2025.

On the other hand, the expected rebound in October CPI reading in Australia could reinforce RBA's stance to delay its first rate cut from February to May next year.

Technically, AUD/JPY's strong break of 55 EMA should confirm short term topping at 102.39. Deeper decline is now in favor back to 38.2% retracement of 90.10 to 102.39 at 97.69. Firm break there should indicate that corrective rebound from 90.10 has completed with three waves up to 102.39. In this bearish case, deeper fall should be seen to 61.8% retracement at 94.79 and below.

In Europe, at the time of writing, FTSE is down -0.12%. DAX is down -0.27%. CAC is down -0.25%. CAC is down -0.26%. UK 10-year yield is up 0.004 at 4.351. Germany 10-year yield is down -0.011 at 2.200. Earlier in Asia, Nikkei fell -0.87%. Hong Kong HSI rose 0.04% China Shanghai SSE fell -0.12%. Singapore Strait Times fell -0.51%. Japan 10-year JGB yield fell -0.0038 to 1.070.

BoC’s Mendes signals further rate cuts, data-dependent approach

BoC Deputy Governor Rhys Mendes said in a speech today that “We no longer need interest rates to be as restrictive as they were,” which justified the larger rate reduction of 50 bps at this month's meeting.

Inflation data for October came in at 2%, matching expectations, while preferred core inflation measures edged up to approximately 2.5%. Mendes noteds that key upcoming data points, including third-quarter GDP and November employment figures, will play a critical role in shaping the BoC’s December rate decision.

“If the economy evolves broadly in line with our forecast,” Mendes stated, “then it’s reasonable to expect further cuts to our policy rate.”

However, he emphasized that the timing and pace of any additional easing will depend on incoming data and its implications for the inflation outlook.

ECB’s de Guindos: Inflation easing, focus shifts to fragile growth

In an interview with Helsingin Sanomat, ECB Vice President Luis de Guindos acknowledged the shifting priorities of the ECB as inflation continues to decline.

Inflation is expected to return to the medium-term target of 2% by 2025. At the same time, economic growth remains very weak. So "concerns about high inflation have shifted to economic growth". he said.

Additionally, he highlighted the rising challenges posed by "geopolitical risks" and uncertainty surrounding US. trade and fiscal policies, which could have broader implications for the Eurozone economy.

Looking ahead, ECB’s December projections will offer further clarity, but De Guindos reiterated that if current forecasts hold, the central bank will "continue making our monetary policy stance less restrictive."

De Guindos stressed the importance of a cautious, data-driven approach in such uncertain conditions, noting that "it’s difficult to make predictions about the specific number and size of rate cuts." However, with inflation moving closer to the medium-term target, ECB appears set to maintain its easing bias.

ECB’s Villeroy expects limited inflation impact in Europe from Trump policies

French ECB Governing Council member Francois Villeroy de Galhau highlighted the global economic risks stemming from US President-elect Donald Trump’s plans to increase tariffs and implement tax cuts. Speaking at a retail investor conference in Paris, Villeroy noted that these policies could raise inflation in the US while dampening growth internationally.

While Villeroy acknowledged that the inflationary impact on Europe would likely be “relatively limited,” he emphasized the influence on European long-term interest rates.

“Long-term interest rates set by the market have a certain tendency to cross the Atlantic,” he remarked, suggesting that US policy changes could indirectly affect Eurozone markets.

"I don't think it changes much for European short-term rates, but long-term rates could see a transition effect," he noted.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 153.58; (P) 154.15; (R1) 154.75; More...

USD/JPY's break of 153.27 minor support suggests that correction from 156.74 is extending lower. Intraday bias is back on the downside for 38.2% retracement of 139.57 to 156.74 at 150.18. For now, risk will stay on the downside as long as 156.74 resistance holds, in case of recovery.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

BoC Deputy Governor Rhys Mendes said in a speech today that “We no longer need interest rates to be as restrictive as they were,” which justified the larger rate reduction of 50 bps at this month's meeting.

Inflation data for October came in at 2%, matching expectations, while preferred core inflation measures edged up to approximately 2.5%. Mendes noteds that key upcoming data points, including third-quarter GDP and November employment figures, will play a critical role in shaping the BoC’s December rate decision.

“If the economy evolves broadly in line with our forecast,” Mendes stated, “then it’s reasonable to expect further cuts to our policy rate.”

However, he emphasized that the timing and pace of any additional easing will depend on incoming data and its implications for the inflation outlook.

Full speech of BoC's Mendes here.