Risk appetite continues to deteriorate in the stock market, led by some of the highest-flying tech names. It’s likely year-end profit taking but could also reflect some reconsiderations around the AI trader, particularly as Google releases Gemini 3.0 flash and it scores as well as some of the top-line models from others.
AUD/USD is always a risk-on/risk-off trade and that’s reflected it today’s price moves. At times though, it tracks commodities more closely as a global growth proxy. We’re not seeing that today as gold, silver and oil are all stronger, along with base metals.
Notably though, AUD has had a nice run since late November, climbing to 0.6680 at the highs from 0.6420 on November 20. Zooming out even further, it’s been consolidating in the 0.64-0.67 range since May as we search for broader signals on global and domestic growth.
On the home front, Australian inflation has proven resilient and that has the RBA no longer talking about hiking rates and the market pricing in H2 rate hikes next year. Should that unfold, it will be a tailwind or the Aussie, particularly if the Fed cuts rates and is persistently dovish with a new Chairman.
The drag for AUD could come from China. This week’s data on retail sales was weak and housing remains a sore spot. China pledged this year to spur consumer spending and that just hasn’t materialized. We could get fresh talk about stimulus in the coming months and that could help but the baseline is increasingly centered on a persistently sluggish consumer. If so, that will dampen demand for Australian exports and be a drag on minerals prices.
Tied into that is the US-China trade war. It’s at a standstill now and this week, Treasury Sec Bessent said China has been living up to its side of the deal but that can change quickly. The thinking right now is that Trump is more-focused on affordability as poll numbers dip but his knee-jerk to trouble is tariffs and that’s going to be hard to shake.
Overall, the market should continue to be comfortable in the 0.64-0.67 range. We’re retreating from the top end of that now and we will wait for some kind of definitive break. Right now, I’m cautious of equity market selling from now through the first few weeks of the year but that will depend on how the AI trade evolves.
This article was written by Adam Button at investinglive.com.