December kicks off with some potentially heavy hitting reports, including the monthly US non-farm payrolls, ISM Services figures, China CPI and trade data, plus two major central bank meetings. Investors will be looking for the numbers to confirm that the disinflation and slowdown process is ongoing, as markets head into the last FOMC meeting of the year next week. It will be fascinating to see if Friday’s upside breakout in gold can be sustained, while US stocks look to be on the verge of another upleg too.

Expectations for rate cuts in the new year have ramped up recently, with over 100bps of policy easing currently priced in and close to a two in three chance of the first quarter-point cut in March. The October US jobs report was much softer than forecast so there may perhaps be a small recovery. However, the trend for weak job creation is in place which should slowly push up the unemployment rate while wage growth stabilises at a modest pace. The greenback has generally followed Treasury yields lower with the 200-day simple moving average capping the upside in the Dollar Index.

There is no chance that the RBA will increase rates at its meeting, following the much lower-than-anticipated October inflation figures. That said, this is only monthly data and so the bank will pay more attention to the quarterly numbers released at the end of January. Markets will be on the lookout for any hints that a final rate hike is still on the table through to March next year. Policymakers could be mindful that base effects in inflation could make it tough for prices to fall much further. The aussie enjoyed its third week of gains against the dollar and is looking to advance thorough resistance at 0.6591. This is a major Fibonacci level (61.8%) of the July to October decline.

The Bank of Canada will also keep rates unchanged with the peak in rates very likely in place after Governor Macklem said they might now be restrictive enough, even if it was not the time to be thinking about rate cuts. Data has generally been on the soft side since the last meeting and with weak growth expected to persist, any signals of an end to the tightening cycle should cause weakness in the CAD. The loonie has struggled along with the dollar in recent weeks with money markets pricing in over 100bps of BoC rate cuts by the end of 2024.

Major data releases of the week:

05 December 2023, Tuesday

-RBA Meeting: The RBA is expected to leave rates unchanged at 4.35% after a 25bp hike last month. That was due to an upward revision to the inflation outlook, but October CPI printed below forecasts. The bank will remain alert to upside risks, and this should help support AUD.

-US ISM Services: The November non-manufacturing survey is forecast to tick higher to 52.5 from 51.8. The services sector had slowed for a second straight month in October to a five-month low. A reading above 50 indicates growth in services, which account for over two-thirds of the economy.

06 December 2023, Wednesday

-Australia Q3 GDP: Consensus forecasts a 0.4% reading in the third quarter which means annual growth slows to 1.8%. High inflation and interest rates are acting as a strong headwind with domestic demand growth likely cooling. 

-The Bank of Canada Meeting: The BoC is likely to keep rates on hold at 5% at this statement-only meeting. Economic challenges are intensifying while there is an ongoing dovish repricing of Fed rate expectations. That could mean a modestly softer hawkish tone from policymakers.

08 December 2023, Friday

–US Non-Farm Payrolls: Analysts forecast a headline print of 200k, up from the prior 150k. That saw the 3-month average drop to 204k. The jobless rate is expected at 3.9% and average hourly earnings at 0.3%.