Australia’s December CPI reinforces the case for an RBA rate hike as underlying inflation re-accelerates and services pressures intensify.Summary:Australian CPI surprised higher across headline and core measuresTrimmed mean inflation rose to 0.9% q/q and 3.4% y/ySix-month annualised core inflation sits near 3.9%Services inflation accelerated sharply, led by travel and rentsData strengthens the case for a 25bp RBA hike in FebruaryAustralian inflation surprised firmly to the upside in December, reinforcing the case that price pressures remain too persistent for the Reserve Bank of Australia to stay on hold at its early-February meeting. Both headline and underlying measures accelerated, leaving inflation well above the RBA’s 2–3% target band and strengthening expectations of a 25bp cash-rate hike on February 3.Headline CPI rose 3.8% y/y in December, up from 3.4% previously, while trimmed mean inflation increased to 3.3% y/y, also edging higher. On a quarterly basis, trimmed mean inflation printed at 0.9% q/q, above expectations, taking six-month annualised core inflation to around 3.9%, a level inconsistent with a return to target within a reasonable timeframe.Monthly data showed inflation momentum remained firm into year-end. CPI rose 1.0% m/m in original terms and 0.2% m/m on a seasonally adjusted basis, underscoring that disinflation is not proceeding smoothly. Annual inflation increased across both headline and trimmed mean measures, suggesting broad-based rather than isolated pressures.The composition of inflation is likely to be of particular concern for the RBA. Services inflation accelerated to 4.1% y/y, up from 3.6%, driven by strong gains in domestic holiday travel and accommodation and continued pressure in rents. These are precisely the categories the RBA views as most sensitive to domestic demand and labour market conditions.Goods inflation also edged higher to 3.4% y/y, with electricity prices a key contributor. Electricity inflation rose more than 21% y/y, highlighting the uneven and fragile nature of goods disinflation even as global supply pressures ease.Housing costs remain a major driver of price pressures, rising 5.5% over the past year, while food inflation stayed elevated at 3.4% y/y. Together, these components continue to squeeze household budgets and risk entrenching higher inflation expectations.With inflation now re-accelerating at the margin and underlying measures still running well above target, the data strengthen the argument that policy remains insufficiently restrictive. When combined with a still-tight labour market (Australia jobs surge in December, lifting AUD and RBA rate hike expectations) and ongoing evidence of wage and services-price pass-through, the December CPI release increases the likelihood the RBA opts to resume tightening rather than risk falling behind the curve. Earlier:Australian Trimmed Mean CPI quarterly 3.8% y/y (expected 3.6)AUD/USD rose to highest since February 2023 after stronger than expected inflation data This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight Australia’s December CPI data just threw a curveball at the RBA’s rate strategy. With trimmed mean inflation hitting 0.9% quarter-over-quarter and 3.4% year-over-year, traders need to brace for potential rate hikes. The six-month annualized core inflation at 3.9% signals that inflationary pressures are not just a blip but a trend, especially with services inflation surging due to rising travel and rent costs. This could lead to the RBA tightening monetary policy sooner than expected, impacting the Australian dollar and related assets. Look, while some might argue that this is just a seasonal spike, the reality is that sustained inflation can lead to a stronger AUD as higher rates attract foreign investment. Keep an eye on the AUD/USD pair; if it breaks above recent resistance levels, it could signal a bullish trend. Watch for any comments from RBA officials in the coming days, as they could provide more clarity on their next moves. 📮 Takeaway Monitor the AUD/USD for potential bullish moves if the RBA signals a rate hike; key resistance levels are crucial to watch.

The PBOC follows a managed floating exchange rate system that allows the value of the yuan to fluctuate within a +/- 2% range, around a central reference rate, or “midpoint.” The rate set under 7 today for the first time since May 2023.Previous close 6.9545.Injects 377.5bn yuan through 7-day reverse repos at 1.40%.Earlier, impacting this rate set today:ICYMI – How Trump trashed the US dollar to a four year low This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight The yuan’s drop below 7 is a significant psychological barrier for traders, signaling potential volatility ahead. This move by the PBOC, coupled with the injection of 377.5 billion yuan, suggests they’re trying to stabilize the currency amid economic pressures. A weaker yuan can lead to increased capital outflows, impacting not just forex markets but also commodities priced in dollars, like oil and gold. Traders should keep an eye on the 6.95 level as a potential pivot point; a sustained break could trigger further selling pressure. Additionally, the broader implications for trade balances and inflation could influence central bank policies globally, especially if the yuan’s depreciation accelerates. However, there’s a flip side: if the PBOC’s actions successfully stabilize the yuan, we might see a rebound that could catch short sellers off guard. Watch for any comments from the PBOC regarding future interventions or adjustments to their policy, as these could provide crucial insights into their strategy moving forward. 📮 Takeaway Monitor the 6.95 level closely; a sustained break could lead to increased volatility and impact related markets like commodities.

Major bank forecasts are converging on a February RBA rate hike as inflation surprises force markets to reassess policy risks.Summary:Three of four major banks now expect an RBA hike in FebruaryNAB and CBA have held hawkish calls since DecemberANZ shifted after stronger-than-expected CPI dataInflation persistence and labour tightness underpin forecastsMarket pricing for a hike has lifted to around 73%The case for a February rate hike from the Reserve Bank of Australia has strengthened, with three of the country’s four major banks now forecasting a 25 basis point increase at the February 3 meeting. National Australia Bank and Commonwealth Bank had already been calling for a hike since December, while ANZ shifted to a tightening forecast following today’s stronger-than-expected inflation data.NAB was the earliest of the majors to strike a hawkish tone, arguing that persistent inflation risks and resilience in the domestic economy would force the RBA to resume tightening despite market assumptions that policy had already peaked. NAB sees February as the first of two hikes in 2026, followed by a second move in May, warning that markets were underestimating the risk of further action if inflation failed to cool convincingly.Commonwealth Bank reached a similar conclusion in December, pointing to an economy operating closer to potential than the RBA had anticipated. CBA highlighted a faster-than-expected rebound in growth through the second half of 2025, with momentum broad-based and household consumption supported by recovering real incomes and declining savings buffers.Labour market conditions have been central to CBA’s tightening call. Employment growth has remained resilient, spare capacity appears limited, and unemployment is expected to stay low even as population growth moderates. With wages growth still running above productivity, CBA has argued domestic cost pressures remain inconsistent with inflation returning smoothly to target without additional policy restraint.Today’s CPI release has added weight to those arguments and triggered a shift from ANZ. Following upside surprises across headline and trimmed-mean inflation, ANZ now expects the RBA to lift rates by 25bp next week. However, ANZ frames the move as a one-off insurance hike, rather than the start of a sustained tightening cycle, reflecting uncertainty over how quickly inflation pressures will ease later in 2026.Markets have responded by repricing the probability of a February move higher. Pricing for a 25bp hike rose from around 62% prior to the CPI release to roughly 73% afterward, underscoring growing conviction that the RBA cannot afford to remain on hold in the face of persistent above-target inflation and a still-tight labour market.With three major banks now aligned on a February hike, attention is shifting from whether the RBA moves to how it frames the decision, as risk management against inflation persistence or as the first step in a renewed tightening phase.-Westpac is the other of Australia’s big 4. I haven’t seen anything from them yet. The last I had from analysts at WPAC was they were looking for the Reserve Bank of Australia to remain on hold. This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight February’s RBA rate hike is shaping up to be a pivotal moment for traders, and here’s why you should care: With three out of four major banks now predicting a hike, the market’s sentiment is shifting rapidly. NAB and CBA have been vocal about their hawkish stance since December, while ANZ’s recent pivot following stronger-than-expected CPI data signals a broader consensus on inflation persistence. This isn’t just a local issue; it could ripple through forex markets, particularly affecting AUD pairs. If inflation continues to surprise on the upside, we might see traders adjusting their positions aggressively ahead of the February meeting. Watch for key resistance levels in AUD/USD around recent highs, as a confirmed rate hike could push the pair higher. Conversely, if the RBA holds off, expect a sharp correction. Here’s the thing: while the mainstream narrative is focused on the hike itself, keep an eye on labor market data and consumer sentiment as potential game-changers. If these indicators show signs of weakness, it could undermine the RBA’s hawkish outlook, leading to volatility. Monitor the market closely as we approach February; the implications for both AUD and broader market sentiment could be significant. 📮 Takeaway Watch for AUD/USD resistance levels as February approaches; a confirmed RBA hike could drive the pair higher, but weak labor data might trigger a reversal.

ECB’s Cipollone says Europe’s economic resilience is holding, but geopolitical risks threaten growth and strengthen the case for financial autonomy.Summary:ECB sees geopolitical risks reinforcing case for European payments autonomyEuro-area economy remains resilient, with data potentially beating forecastsInvestment strength supports growth without undermining price stabilityPersistent geopolitical uncertainty risks weighing on investmentECB policy focused solely on euro-area inflation outlookPiero Cipollone said rising geopolitical tensions are reinforcing the case for greater European autonomy in payments and financial infrastructure, while also posing growing risks to the inflation and growth outlook in the euro area.Cipollone argued that the increasing use of economic and technological tools as instruments of geopolitical pressure has exposed vulnerabilities in Europe’s financial architecture. Against that backdrop, he said the European Central Bank’s push to develop a digital euro and strengthen domestically controlled payment systems is becoming more strategically important. Europe, he noted, still lacks a cross-border payments champion capable of matching the scale of dominant U.S. providers, leaving the region exposed to external dependencies.Turning to the macroeconomic outlook, Cipollone said the euro-area economy has so far demonstrated notable resilience, with upcoming data likely to exceed earlier forecasts. He attributed recent upward revisions in growth expectations largely to stronger investment, highlighting that higher investment not only supports near-term demand but also expands productive capacity, allowing faster growth without necessarily generating inflationary pressure.However, Cipollone cautioned that the outlook is becoming more uncertain as geopolitical risks intensify. Persistent uncertainty, he warned, could weigh on business confidence and delay or deter investment decisions. Over time, that would undermine growth momentum and feed through to inflation dynamics, ultimately affecting the real economy.On monetary policy, Cipollone stressed that the ECB remains firmly focused on its mandate of price stability in the euro area. Developments abroad, including political pressure on other central banks, are only relevant insofar as they influence euro-area inflation and growth conditions. The ECB, he said, continues to set interest rates with the objective of returning inflation to its 2% target over the medium term.Overall, Cipollone’s remarks underline a dual challenge for policymakers: preserving monetary stability amid an uncertain global environment while reducing Europe’s exposure to geopolitical shocks through greater financial and payments sovereignty.—Piero Cipollone is a member of the European Central Bank’s Executive Board, the body responsible for steering monetary policy and overseeing the ECB’s ongoing operations. In that capacity, he participates in monetary policy deliberations alongside the ECB President and other board members, and contributes to shaping the institution’s strategic priorities — including price stability, financial infrastructure initiatives like the digital euro, and assessments of economic conditions across the euro area. His public remarks often reflect the ECB’s policy framework and risk assessments on inflation, growth and structural challenges facing the euro-area economy. This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight Europe’s economic resilience is being tested, and here’s why that matters for traders: The ECB’s recent comments highlight a dual narrative—while the euro-area economy shows strength, geopolitical risks loom large. This resilience could lead to better-than-expected economic data, which might support the euro against other currencies. However, persistent geopolitical tensions could deter investment, creating volatility in the forex markets. Traders should keep an eye on the euro’s performance against the dollar, especially if upcoming data releases show unexpected strength. If the euro breaks above key resistance levels, it could signal a bullish trend, but any negative geopolitical developments could quickly reverse that momentum. On the flip side, the call for financial autonomy suggests a shift in how Europe may approach its economic policies, potentially impacting the euro’s long-term value. This could lead to increased volatility as markets react to changes in monetary policy or shifts in investment strategies. Watch for any significant economic data releases this week, as they could provide clues on whether the euro can maintain its strength or if geopolitical risks will dominate the narrative. 📮 Takeaway Monitor the euro against the dollar closely; a break above key resistance could signal bullish momentum, but geopolitical risks remain a significant threat.

Westpac says persistent core inflation leaves the RBA little choice but to hike in February, while favouring a cautious wait-and-see stance thereafter.Summary:Westpac now expects a 25bp RBA hike in FebruaryTrimmed mean inflation seen as delivering the “casting vote”Underlying inflation momentum still uncomfortably highFebruary move framed as likely one-off, not a hiking cycleRBA expected to retain a conditional tightening biasWestpac has joined its major bank peers in forecasting a 25 basis point rate hike from the Reserve Bank of Australia at the February meeting, arguing that persistently elevated inflation has delivered the “casting vote” for tighter policy. With trimmed mean inflation printing well above comfort levels for a second consecutive quarter, Westpac now expects the RBA to lift the cash rate to 3.85%, while maintaining a base-case view that the move will be one-and-done rather than the start of an extended hiking cycle.Westpac’s analysis centres on the difficulty of precisely identifying economic slack when the economy is operating close to full employment and near full capacity utilisation. In that environment, inflation outcomes become the most reliable guide for policy. The December quarter inflation data, particularly the 0.9% q/q rise in trimmed mean inflation and the 3.4% y/y pace, is viewed as sufficiently uncomfortable to warrant renewed tightening.The bank argues that underlying inflation momentum now sits above levels consistent with a smooth return to the RBA’s 2–3% target band, leaving the central bank little room to delay action. This mirrors the logic already advanced by NAB and CBA, which have been calling for a February hike since December, and aligns with ANZ’s shift following the upside CPI surprise.Beyond the February decision, Westpac sees the outlook becoming more finely balanced. Recent data imply a higher inflation starting point than assumed in the RBA’s November Statement on Monetary Policy, reflecting firmer labour market conditions and a clearer upswing in consumer spending. These forces argue for caution in declaring victory on inflation.At the same time, Westpac highlights emerging offsets that could temper the need for a prolonged tightening phase. Financial conditions have tightened via higher market pricing for interest rates, and the Australian dollar has strengthened noticeably, both of which should help restrain demand and dampen the inflation trajectory over time.As a result, while Westpac expects the RBA to act in February, it does not anticipate an automatic follow-up. Policy is already judged to be restrictive, and the remaining disinflation task is relatively modest. The most likely outcome is a wait-and-see approach after February, paired with clear communication that the RBA stands ready to act again if inflation fails to moderate as expected.With the four major banks now forecasting a February hike, attention is shifting from the decision itself to how forcefully the RBA signals its conditional tightening bias. This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight Westpac’s prediction of a 25bp RBA hike in February signals a critical moment for traders: persistent core inflation is reshaping monetary policy. With underlying inflation momentum remaining high, traders should brace for potential volatility in the Australian dollar and related assets. If the RBA follows through with this hike, it could strengthen the AUD against major pairs, particularly if global economic conditions remain stable. However, the emphasis on a cautious wait-and-see approach suggests that any subsequent moves may be data-dependent, which could lead to uncertainty in the market. Keep an eye on inflation reports leading up to February, as any surprises could shift expectations dramatically. Here’s the flip side: if inflation shows signs of easing, the RBA might reconsider its stance, leading to a potential sell-off in the AUD. Monitoring the trimmed mean inflation metrics will be crucial. Traders should also watch the 0.70 level on the AUD/USD pair as a key support/resistance point in the lead-up to the February decision. 📮 Takeaway Watch for inflation data leading up to February; a 25bp hike could strengthen the AUD, especially if it holds above 0.70 against USD.

Trump may move early on naming the next Fed chair, potentially aligning the announcement with this week’s policy decision.Summary:Trump may announce Fed chair nominee as soon as this weekTiming could coincide with the January FOMC decisionPowell’s term runs until May, but Trump appears keen to move earlyAnalysts see political incentive if the Fed holds ratesMarkets alert to implications for Fed independenceDonald Trump could announce his nominee to replace Jerome Powell as early as this week, potentially timing the decision to coincide with the Federal Reserve’s January policy meeting, according to analysts.The Federal Open Market Committee is due to deliver its interest-rate decision on Wednesday, an event that already carries heightened sensitivity amid renewed scrutiny of central-bank independence. Analysts suggest that announcing a Fed chair pick alongside the meeting would allow the White House to shape the policy narrative, particularly if the Fed opts to hold rates steady.Trump has repeatedly criticised the Fed’s policy stance and has made clear his intention to replace Powell, even though the current chair’s term does not expire until May. Treasury Secretary Scott Bessent has indicated that the president’s decision on a successor could come as soon as this week, reinforcing expectations that the process is being brought forward.Market commentators argue that aligning the announcement with the January meeting would serve a strategic purpose. If the Fed refrains from cutting rates, a nomination could redirect attention toward future leadership and policy direction, rather than the immediate decision. More broadly, analysts see a wide window for an announcement spanning the current meeting or the weeks immediately ahead.The personnel backdrop adds another layer of complexity. The term of Federal Reserve Governor Stephen Miran is due to expire this weekend, although he can remain in his role until a successor is confirmed. It remains unclear whether the White House intends to nominate a replacement governor at the same time as unveiling its preferred candidate for chair, or whether the two decisions will be handled separately.While the White House has declined to comment on timing or sequencing, markets are increasingly alert to the political dimension surrounding the Fed. Any move to accelerate the chair nomination process is likely to intensify debate around policy independence and could inject additional volatility into rates, currencies and equities at a sensitive moment for monetary policy. This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight Trump’s potential early announcement on the Fed chair could shake up markets this week. If he aligns this with the January FOMC decision, traders should brace for volatility. The Fed’s direction under a new chair could impact interest rates and liquidity, affecting everything from equities to forex pairs. If Powell is replaced, expect a shift in market sentiment, especially if the new nominee signals a more hawkish or dovish stance. This could ripple through related assets like gold and the dollar, as traders recalibrate their positions based on anticipated monetary policy changes. Keep an eye on how the market reacts to any hints from Trump, especially around key levels in the S&P 500 and USD pairs. Here’s the thing: while mainstream coverage might focus on the political drama, the real story is how this could influence inflation expectations and risk appetite. Watch for any sudden moves in the bond market as traders adjust their forecasts based on the new chair’s potential policies. 📮 Takeaway Monitor Trump’s announcement closely; any shift in Fed leadership could lead to significant market volatility, especially around the January FOMC decision.

BoJ minutes show yen weakness and labour tightness are key inputs into the timing of further rate hikes.Summary:BoJ debated yen weakness and labour shortages as inflation driversDecember rate hike lifted policy rate to 0.75%Some members see inflation becoming more entrenchedWeak yen viewed as feeding underlying inflation pressuresNo preset hiking path, but further tightening firmly on the tableBank of Japan policymakers used their December meeting to debate how a weak yen and tightening labour conditions are increasingly shaping the timing of further interest rate hikes, according to minutes released Wednesday. The discussion reinforced the board’s readiness to continue normalising policy following December’s rate increase to 0.75%, the highest level in three decades.Members broadly agreed that additional hikes would depend on how economic conditions and inflation forecasts evolve. While some favoured a cautious approach, others argued that inflation pressures were becoming more entrenched as firms continued to pass on higher wages and input costs, signalling reduced tolerance for prolonged policy accommodation.The weak yen featured prominently in the debate. Several members noted that currency depreciation was adding to inflation by lifting import prices at a time when companies were already raising wages and prices. Although policymakers reiterated that exchange rates are not an explicit policy target, they acknowledged that yen moves can materially influence underlying inflation and therefore warrant consideration when assessing the need for further tightening.Labour market dynamics also loomed large. Persistent labour shortages were seen as reinforcing wage growth and strengthening the transmission of cost pressures into prices. One member explicitly linked the yen’s depreciation and the rise in long-term yields to the policy rate being too low relative to inflation, arguing that timely rate hikes could help restrain future inflation and stabilise longer-term borrowing costs.Currency developments have taken on political sensitivity as well, with yen weakness fuelling cost-of-living pressures ahead of Japan’s February general election. After briefly approaching 160 per dollar last week, the yen has rebounded sharply amid speculation of coordinated action by Japanese and U.S. authorities.Looking ahead, most members opposed committing to a fixed timetable for further hikes, preferring flexibility. However, one suggested tightening at intervals of a few months given how far policy remains from neutral. Others stressed the importance of monitoring a broad set of indicators, including anecdotal evidence, to confirm whether a durable wage–price cycle is firmly in place. This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight The BoJ’s recent minutes highlight a critical juncture for the yen and interest rates. With the policy rate now at 0.75%, the discussion around yen weakness and labor shortages as inflation drivers is significant. A weak yen not only raises import costs but also fuels inflation, which could push the BoJ to consider more aggressive rate hikes sooner than expected. Traders should keep an eye on the inflation data and labor market indicators, as these will likely dictate the BoJ’s next moves. If inflation continues to rise, we could see a shift in sentiment that might strengthen the yen, especially if the market anticipates a more hawkish stance from the BoJ. However, there’s a flip side: if the yen strengthens too quickly, it could hurt Japan’s export-driven economy, leading to a more cautious approach from the BoJ. Watch for key inflation reports and labor market updates in the coming weeks, as these will be pivotal in shaping market expectations and trading strategies. 📮 Takeaway Keep an eye on inflation data and labor market indicators; they could signal further rate hikes from the BoJ and impact the yen significantly.

Goldman says investors remain firmly risk-on, brushing aside rising geopolitical uncertainty.Summary:Goldman says investor risk appetite remains elevatedSentiment sits around the 67th percentileRisk appetite index at highest level since April 2021Equity positioning remains broadly bullishFlows expanding into Europe, Japan and EMGoldman Sachs says investor risk appetite remains elevated despite a backdrop of intensifying geopolitical uncertainty, suggesting markets are continuing to look through macro and political risks for now.According to the bank’s latest positioning and sentiment indicators, investor optimism currently sits around the 67th percentile, a level that signals confidence remains firmly intact. Goldman adds that its proprietary risk appetite index has climbed to its highest reading since April 2021, underscoring the extent to which investors continue to favour risk assets.The bank notes that flows into higher-risk assets remain positive across the board, while survey-based measures of bullishness have also picked up. Equity positioning, in particular, remains strongly constructive, with investors maintaining overweight exposures and expanding allocations across regions rather than retreating to defensive positioning.Goldman highlights that the breadth of the rally has been supported by continued engagement from U.S. retail investors, whose activity has helped underpin participation across a wide range of stocks rather than a narrow group of leaders. At the same time, international flows have accelerated, with foreign investors increasing allocations to European, Japanese and emerging market assets.This broadening of exposure suggests investors are becoming more comfortable with global growth prospects and are less inclined to concentrate risk solely in U.S. markets. It also points to a willingness to reallocate toward regions that may benefit from cyclical recovery, valuation support, or improving policy settings.While Goldman acknowledges that geopolitical risks have increased and remain a potential source of volatility, the bank’s analysis suggests these concerns have yet to materially dent investor confidence. Instead, positioning data imply that markets continue to prioritise growth resilience, earnings momentum and liquidity conditions over downside geopolitical scenarios.The bank cautions that elevated risk appetite can amplify market sensitivity to adverse surprises, but for now, investor behaviour indicates a continued preference for staying invested rather than de-risking in anticipation of shocks. This article was written by Eamonn Sheridan at investinglive.com. 🔗 Source 💡 DMK Insight Goldman’s latest report shows investors are still in a risk-on mode, and here’s why that matters: With the risk appetite index hitting its highest level since April 2021, traders should be aware that this sentiment could lead to increased volatility in equities, especially if geopolitical tensions escalate. The current positioning suggests a bullish outlook, particularly in European, Japanese, and emerging markets. This could mean that sectors tied to these regions might see significant inflows, but it also raises the stakes for potential corrections if the sentiment shifts. Look for key technical levels in major indices; a break below recent support could trigger profit-taking among those riding the bullish wave. However, it’s worth noting that such elevated risk appetite often precedes market pullbacks, especially when geopolitical uncertainties loom. Traders should monitor the geopolitical landscape closely, as any sudden developments could shift sentiment rapidly. Keep an eye on the S&P 500 and its recent highs—if it starts to falter, it could signal a broader market retreat. 📮 Takeaway Watch for shifts in the S&P 500; a break below recent support could indicate a risk-off sentiment shift amid rising geopolitical tensions.