New Zealand’s electronic card retail sales fell to -0.1% in December, down from 1.2% the month before. This decline hints at a decrease in consumer spending in the country during that time. In Australia, the unemployment rate dropped to 4.1% in December, better than the expected 4.4%. This unexpected fall in unemployment may impact monetary policy soon.

China’s Market Update

The People’s Bank of China set the USD/CNY reference rate at 7.0019, up slightly from 7.0014. This change reflects the latest trends in the foreign exchange market. Gold prices have fallen below $4,800 after reaching record highs, partly due to easing tensions as the US withdrew its threat of tariffs in Europe. President Donald Trump also announced a new deal regarding Greenland, which influenced the markets. The Australian dollar has strengthened against the US dollar, thanks to the recent positive employment data. This improvement likely enhances the outlook for the Reserve Bank of Australia’s monetary policy. Monero, a popular cryptocurrency, is still declining, priced below $500. This represents about a 38% drop from a peak of $800, showing the recent instability of this asset.

Market Sentiment Shift

With the reduced risk of European tariffs, market sentiment has changed significantly. Gold has dropped sharply from its near-record highs of $4,888, indicating a shift towards riskier assets. In the coming weeks, consider strategies that take advantage of lower market volatility, like selling out-of-the-money call options on gold. The yen is also feeling the impact of this sentiment shift, with USD/JPY rising above the 158.00 mark. Typically, when major geopolitical risks fade, the yen tends to weaken for an extended time. We’ve seen this pattern throughout 2023 and 2024, making USD/JPY call options a potential way to capitalize on this trend. A clear divergence is forming between Australia and New Zealand, opening up pair trading opportunities. The unexpected drop in Australia’s unemployment rate to 4.1% strengthens the case for a more aggressive Reserve Bank of Australia. In contrast, New Zealand’s electronic card sales fell by 0.1%, indicating consumer weakness that may lead the Reserve Bank of New Zealand to adopt a softer approach. This fundamental difference supports a long AUD/NZD position. Reviewing RBA statements from 2024, we see they consistently highlighted the labor market’s strength as a key reason for tight policy. Therefore, anticipating the Australian dollar will outperform the New Zealand dollar is reasonable, possibly through futures contracts or long-dated options. All attention is now on the upcoming US Personal Consumption Expenditures (PCE) and GDP data. The US dollar has bounced back, but its strength will be tested by these results. Recall how stubborn inflation data in 2023 led to aggressive action from the central bank. A strong PCE reading could solidify the dollar’s gains, putting more pressure on gold and the euro. Create your live VT Markets account and start trading now.

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