Ahead Today
G3: US Durable goods, US Challenger Job Cuts, US Initial Jobless Claims
Asia: Thailand Consumer Confidence
Market Highlights
Weak US private payrolls cemented market expectations for US rates cuts, and helped to support risk assets, while rising metal prices give us some confidence that Asia’s exports and risk sentiment more broadly should be supported into at least 1H2026. In particular, private sector payrolls decreased by 32,000 in November, according to ADP Research released. While the correlation between the ADP numbers and NFP is not perfect, more generally this risks heightening concerns of a more rapid deterioration in the labour market ahead of the Fed’s policy meeting next week. Overall, we think that the December Fed meeting will be quite a divided one, but ultimately points towards a cut. Meanwhile, the Financial Times reported bond investors told the Treasury Department they are concerned about Kevin Hassett’s potential appointment as Fed Chair, expressing concerns that Hassett will cut interest rates aggressively to please President Trump. Beyond our expectation for the US labour market to remain soft in 2026, a possibly captured Fed and concerns around loss of Fed independence is one key reason for our view of a weaker Dollar in 2026, with our global team expecting EUR/USD to rise above 1.20 later next year.
Across our region, we saw a continued rise in Aussie rates (and to a lesser extent this spilled over to FX as well), coupled with continued weakness in the Indian Rupee. In particular, the Australian dollar and bond yields rose, after initially dropped on slower than expected GDP print, as details showed that labour costs steady elevated coupled with nominal growth indicators suggesting that inflationary worries by the RBA is justified. Aussie OIS rates markets are now pricing for the 1st RBA rate hike as soon as the August 2026 meeting, from December previously, and also highlighting how central bank policy divergence and with that FX performance could become a more important theme heading into 2026. AUD/USD rose up above the 0.661 level on the back of these developments.
Meanwhile, the Indian Rupee continued to make new lows with onshore spot USD/INR rising to 90.19, with forward implied yields both onshore and offshore also picking up sharply as hedging demand rose and perhaps some stop losses were triggered along the way. Thus far, RBI seems more hands-off in terms of intervention, and it’ll be important to see whether there are any policy signals from the upcoming RBI policy meeting later this week on the Indian Rupee. From a fundamental perspective, we are assuming that a trade deal between US and India bringing tariffs down to 25% from 50% currently will ultimately be reached, and as such, we do see some relief for INR in 1Q2026 (see IndiaPulse – What ails INR – Balance of payments remains unbalanced). Nonetheless, our analysis of the balance of payments shows that a wider current account deficit with stronger import needs, coupled with still soft net FDI flows continue to weigh on INR into 2026, beyond the more sentiment driven portfolio inflows. We are targeting USD/INR to move towards 90.8 in 2026, but given the way the market is moving, we think RBI may announce measures to perhaps attract NRI flows among other possible policies to help reduce the pace of FX weakness. As such we are wary of chasing USD/INR higher at these levels
