IGI Logo

The Canadian dollar and Australian dollar were in focus on Monday ahead of their central bank meetings this week, while the euro and other major currencies lost a bit more ground to a strong U.S. dollar.

With a quarter-point rate cut by the Federal Reserve next week a near certainty as per market pricing, analysts say the dollar is looking tired after its long run-up in the four weeks since Donald Trump won the presidential election.

Morgan Stanley analysts even recommend being short U.S. dollars into the year end, calling it a "pain trade" for markets that are widely and heavily long the currency.

"Much of the US dollar-positive story is in the price – from strong US data to trade and fiscal risks – and positioning is fairly long dollars," they wrote.

Mizuho Bank strategist Vishnu Varathan pointed to a host of geopolitical developments, such as the weekend fall of Syrian President Bashar al-Assad's regime, alongside macro- and Trump-related trades as providing markets further impetus to stay long dollars.

"There's no incentive to short the dollar against any particular currency," he said.

Against the yen, the dollar was flat around 149.93 while the euro stood at $1.0537 , down 0.27% so far in Asia and below Friday's low of $1.0542. The dollar index rose 0.24% to 106.20.

Last week's headliner, bitcoin, which hit six-figures for the first time at a record $103,649, was last at $99,515.

The dollar rally lost momentum last week. The yen lost just 0.16% for the week, after spending most of it tight between 148.65 and 151.23. The euro was volatile after the collapse of France's government but rallied to end the week up from two-year lows of $1.0332 hit at the end of November.

The main events investors are watching this week are the European Central Bank (ECB) policy meeting on Thursday and China's closed-door Central Economic Work Conference.

On the former, a quarter point cut by the ECB is baked in. On China, analysts suspect there won't be any big stimulus proposals or targets until there's more clarity on what Donald Trump plans to do around trade tariffs after he assumes office in January.

The Bank of Canada (BoC), Reserve Bank of Australia (RBA) and the Swiss National Bank(SNB) meet this week, with deep rate cuts expected in two of those that could turn yield differentials even more against their currencies.

The Canadian dollar is trading near a 4-1/2-year low as markets anticipate another outsized interest rate cut.

The RBA is the only central bank among its peers that has not yet begun cutting rates, and it isn't expected to do so in December either, although it might soften its tone on growth targets.

The Australian dollar fetched $0.6383 , down 0.12% and close to the $0.6373 four-month low it struck on Friday.

This week will be an interesting one for the Swiss franc, given the intense debate about how deep the SNB's fourth rate cut of the cycle will be. Markets give a higher probability for a larger 50 basis point cut, and are even priming for negative interest rates by next year.

U.S. 10-year Treasury yields were at 4.1430%. Yields fell on Friday after the November payrolls data upped the case for one more rate cut by the Fed at its Dec. 17-18 meeting, the 10-year yield hitting 4.126%, its lowest since Oct. 21.

While the case for the rate cut seems sealed, investors have one eye on U.S. consumer price inflation (CPI) data due this week.

"A hot U.S. CPI print may not necessarily derail a cut at next week’s FOMC meeting, but it would affect the level of implied cuts priced for FOMC meetings from March 2025 onwards and this is where the U.S. dollar may take its directional steer," said Chris Weston, head of research at Australian online broker Pepperstone.