Chaos in the Middle East takes central stage

As Syrian President Bashar Al-Assad fled to Moscow, looters invaded the presidential palace while crowds in Damascus celebrated his downfall. Despite his desperate attempts to hold on, even sending an SOS to Donald Trump, the Syrian leader had run out of options. 

The world is still trying to comprehend the rapid events of recent days. Assad managed to withstand the uprising against him for over 13 years. Russia only provided refuge this time. Meanwhile, Iran distanced itself by implying he was solely responsible for his predicament. 

China eases monetary policy stance

For the first time in about 14 years, China’s top leaders have changed their monetary policy stance as they brace for a possible second trade war with Donald Trump returning to the White House next month.

The Politburo, which consists of the ruling Communist Party’s 24 highest officials and is led by President Xi Jinping, has declared its intention to implement a “moderately loose” strategy next year, signaling a move towards greater easing, which is likely to please investors looking for additional stimulus. Moreover, officials announced plans for a “more proactive” fiscal policy, according to a readout released on Monday, whereas previously, they had indicated that fiscal policy would only be “proactive.”

This follows a statement from the official Xinhua News Agency indicating that the country could afford to increase its borrowing and fiscal deficit in 2025, as mentioned in a commentary last Friday. Although China has experienced several cycles of tightening and loosening in monetary policy in recent years, it has maintained the overarching designation of “prudent” policy since 2011, when authorities moved away from the prior “moderately loose” approach enacted during the Global Financial Crisis to address rising inflation.

US rising unemployment keeps Fed cuts alive

US employment showed improvement in November, though the unemployment rate rose slightly, suggesting a cooling labor market rather than a severe decline. Nonfarm payrolls increased by 227,000 last month, following an upward revision of a 36,000 gain in October, which was affected by storms and strikes, according to figures from the Bureau of Labor Statistics released on Friday. Over the last three months, adjusting for volatility, payroll growth averaged 173,000, down from the strong pace experienced earlier this year. The unemployment rate ticked up to 4.2%, pointing to reduced demand for workers, with long-term unemployment reaching its highest level in nearly three years.

Traders saw this as reinforcing expectations for another interest-rate reduction from the Federal Reserve when officials convene later this month. After factoring in fluctuations due to a Boeing Co. strike and hurricanes, these figures support the Fed’s assessment that the job market is stable but not a major driver of inflation. Although price pressures have remained high in recent months, officials have started lowering interest rates to stimulate the economy and maintain robust hiring.

Dollar optimism is spreading

A robust US economy and escalating global geopolitical tensions are prompting asset managers to reassess their forecasts for a weaker dollar. As of December 3, investors, including pension funds, insurance companies, and mutual funds, reduced their net short positions in dollars by half, bringing them down to $2.05 billion—the lowest level since April 2017, based on data from the Commodity Futures Trading Commission collected by Bloomberg.

Meanwhile, hedge funds increased their bullish positions by 9.3%, maintaining a positive outlook on the US dollar since October. Bloomberg’s dollar index has risen nearly 5% after hitting an eight-month low in late September, as traders anticipate higher US inflation under Donald Trump’s administration. The strengthening dollar is also fueled by rising uncertainties regarding the Federal Reserve’s potential interest-rate cuts and increased demand for safe-haven assets amidst geopolitical tensions, though Wall Street banks predict it will decline in the upcoming year.

AUD awaits RBA amid strong dollar

The Australian and New Zealand dollars have dropped as the US dollar rises, fueled by concerns about the leadership void in Syria. The New Zealand dollar lags behind its G-10 counterparts following news of state bank capital injections.

Goldman Sachs advises shorting the Australian dollar against the New Zealand dollar, anticipating a dovish shift from the RBA. The RBA is expected to adopt a more dovish stance at Tuesday’s meeting, likely cutting rates by 25 basis points in February. However, the rates market has only priced in a full cut by the April meeting.

The latest Bloomberg survey indicates that the RBA intends to lower the cash rate target to 4.10% in May, a delay of three months from previous forecasts.

AUDUSD has decreased by 0.2% to 0.6381 after a nearly 1% dip on Friday. The pair closed just above weekly support derived from the October 2022 low. Tuesday’s Reserve Bank policy decision will be a significant test; even if the FX pair holds firm, much can change before the New York close on Friday. Potential relief rallies are now capped at 0.6550, the high from November 25.

Intraday resistance levels are seen at 0.6528 (November 29 high) and weekly resistance at 0.6550 (November 25 high).

Intraday support is positioned at 0.6373 (December 6 low) and weekly support at 0.6350 (August 5 low).

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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