Intro
As predicted, New Zealand’s central bank cut its interest rate by 25 basis points on Tuesday. While we had expected a Kiwi drop, it turned out to be the strongest currency among the majors last week.
However, my long-term bias remains neutral for the Kiwi and bullish for the Aussie. My sentiment ratings remain the same for all the other currencies.
Over the past few weeks, I’ve gained access to fantastic seasonality data, which has greatly helped with these reports. Although I’m neutral on GBP and CHF currently, expect some bullishness here and there, as they tend to rise historically in December.
Other than the Initial Jobless Claims and unemployment rate for the US, there are no other high-impact news events. So, the market should flow smoothly, but as always, expect the underlying sentiment to play a significant role in the long-term trajectory of each major FX currency. Let’s explore these sentiments again.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (USD): Bearish
The Fed has already cut rates twice this year, and markets are pricing a high probability of a third 25 bp cut at this week’s meeting. This reflects softer labour momentum and inflation drifting into the high-2% range on core PCE.
Alternate labour data show private payrolls actually fell in November, and job cuts this year are the highest since 2020, even as initial jobless claims remain low.
With peak rates clearly behind and yield differentials likely to compress further if the Fed keeps easing, the dollar’s medium-term bias remains to the downside.
Key news to watch: interest rate decision on Wednesday
Euro (EUR): Bullish
Eurozone inflation unexpectedly ticked up to 2.2% in November, the third month above the ECB’s 2% target. Unemployment is steady at 6.4%, and officials such as Chief Economist Philip Lane and President Lagarde continue to describe current interest rates as “appropriate.”
With the Fed already cutting and the ECB in hold-and-watch mode, relative policy still offers the euro some support on dips.
British Pound (GBP): Neutral
The BoE kept the Bank Rate at 4.00% recently in a knife-edge decision, signalling it will move cautiously from here as inflation has moderated but remains above target. Official data show UK CPI easing to 3.6% y/y in October, but still well above target, with food prices and core measures elevated.
That combination of slowing inflation but weak growth leaves GBP stuck in a range. The case for cuts is building, but the Bank’s caution and still-elevated prices prevent a straightforward bearish call.
Japanese Yen (JPY): Neutral
At the same time, Tokyo core CPI rose 2.8% y/y in November, above forecasts, with the index excluding fresh food and fuel also at 2.8%, reinforcing expectations that the BoJ will seriously consider a hike at its December meeting.
With inflation consistently above target and the Fed easing, even a very gradual BoJ normalisation would narrow yield spreads and improve JPY’s medium-term profile.
Australian dollar (AUD): Bullish
The RBA’s November Statement on Monetary Policy and recent data mark a hawkish turn. Stronger-than-expected activity, persistent inflation, and upside surprises in monthly CPI have pushed the market path for the cash rate significantly higher. Inflation is expected to stay above 3% for much of 2026 before slowly returning to target.
Economists now discuss the prospect of eventual hikes rather than cuts, arguing the economy may be running above capacity. For AUD, the downside from a rate cut is limited, but the upside still hinges on how China and commodity demand evolve.
Key news to watch: interest rate decision on Wednesday
New Zealand dollar (NZD): Bullish
The RBNZ cut the OCR by 25 bps to 2.25% on 26 November. This follows an earlier, larger cut, citing subdued activity and the need to support an “enduring recovery” while still meeting its inflation mandate.
The November Monetary Policy Statement shows inflation inside the 1–3% band and projected to drift back toward the 2% midpoint. However, output and employment are running below potential, a backdrop that justifies the easing cycle and leaves the door open to more if conditions disappoint.
Still, NZD is historically bullish this month and should piggyback off the gains of its counterpart, AUD.
Canadian dollar (CAD): Neutral
Canada’s policy rate now sits at 2.25% after recent cuts, and the IMF’s Article IV statement explicitly endorses this move. They noted that inflation is near 2%, expectations are well anchored, and “the economy is operating below potential.”
Growth has slowed, unemployment has risen, and domestic demand is soft, but contained price pressures give the BoC room to support the cycle
While fundamentals aren’t stellar, the currency can still hold its own or firm modestly against the USD amid broader dollar weakness.
Key news to watch: interest rate decision on Wednesday
Swiss Franc (CHF): Neutral
Swiss inflation fell to 0% y/y in November, at the bottom of the SNB’s 0–2% price-stability band. Economists overwhelmingly expect the Bank to keep its policy rate at 0% at this week’s decision and through 2026, seeing no case to re-enter negative territory.
Analysts expect only a tiny downward tweak to the 2026 inflation forecast (to around 0.4%). This underlines how comfortable the SNB is with the current stance while keeping FX intervention tools in reserve.
Key news to watch: interest rate decision on Thursday
