Last week's core market logic was "cooling inflation → interest rate cut expectations → improved liquidity → asset price revaluation." Global markets are seeking a new equilibrium amidst divergence. We recommend focusing on policy implementation and economic data verification to seize structural opportunities.

With the Christmas and New Year holidays approaching, global markets are about to enter a quiet "holiday mode." Against the backdrop of significantly reduced liquidity, any unexpected events could be amplified, triggering sharp fluctuations. Looking ahead to early 2026, US employment data, the Supreme Court's tariff ruling, and the selection of the Federal Reserve Chairman will be key variables influencing market direction.

The holiday season officially begins next week, and many traders will temporarily leave the market before the first full trading week in January. Market trading volume is expected to decline significantly, with almost no major economic data releases.

Last Week's Market Performance Review:

Last week, US stocks declined overall as funds continued to flow out of technology stocks and into value sectors. Although the Dow Jones and Russell 2000 indices hit record highs intraday, the significant decline in technology stocks dragged down the broader market, indicating that the market is becoming more cautious about AI trading in a high-level environment. However, many institutions still believe that this round of adjustment is more of a phase of rotation than a trend reversal. Major US stock indices collectively declined: the S&P 500 fell 1.07% to close at 6,827.41 points; the Nasdaq Composite dropped 1.69% to 23,195.17 points; the Dow Jones Industrial Average, after hitting a record high during the session, retreated, ultimately falling 245.96 points, or 0.51%, to close at 48,458.05 points; the Russell 2000 index, representing small-cap stocks, fell 1.51% to close at 2,551.46 points, but also hit a record high during the trading session.

Gold prices strengthened ahead of the weekend after the latest data showed declining US consumer confidence and further declines in inflation expectations, with safe-haven buying providing support.

Gold prices rose ahead of the weekend after data showed a decline in US consumer confidence and a cooling of inflation expectations, pushing gold to a new daily high. Following the data release, spot gold briefly surged $35, reaching a daily high of $4354.70 per ounce.

Silver prices also saw significant gains during the US session last weekend, reaching a new all-time high of $67.460 for the week, up 8.65% for the week, closing at $67.210. With the weekend approaching and Christmas less than a week away, market sentiment was generally subdued.

The US dollar index rebounded sharply before the weekend, with bulls launching a counterattack. Despite a larger-than-expected drop in CPI last week, the dollar index did not fall, providing a buying signal for bullish traders. The dollar index rebounded the following day and is currently trading around 98.72, up 0.28%. Meanwhile, the Bank of Japan's negative real interest rate and less-than-hawkish comments this morning further fueled the dollar index's rise. On the other hand, the market did not rush to bet on a significantly dovish shift in the Federal Reserve's policy path, allowing the dollar index to stabilize quickly after its initial sharp decline, exhibiting a phenomenon where negative news did not lead to a drop.

Despite a series of releases last week, including the US Consumer Price Index, non-farm payrolls report, and interest rate decisions from several central banks, including the European Central Bank, market volatility was far lower than expected. Against this backdrop, the euro/dollar exchange rate rebounded from its intraday low on Friday, reaching a high of 1.1737 before failing to hold its gains, trading at 1.1710/20, a decrease of 0.02%. The dollar rose against the yen last week, reaching a high of 157.76, its highest level in four weeks and its largest single-day gain since early October. The Bank of Japan raised interest rates by 25 basis points on Friday, its first rate hike in 11 months. This policy adjustment highlights the Bank of Japan's determination to continue raising rates, as inflation has become increasingly integrated into the economy after decades of weak prices following the bursting of the 1990 housing bubble.

Last week, the GBP/USD pair traded in a trendless range, with intense battles between bulls and bears but no clear breakout. It traded at 1.3381/82, a gain of 0.01%. Since its November lows, GBP/USD has formed a gradually rising structure, exhibiting a series of higher highs and higher lows. Recent price action is sending a clear signal that the pair is gradually returning to its previous main uptrend from a correction phase. The Australian dollar is currently trading around US$0.6610, hovering near a two-week low, and is on track for its first weekly decline in a month as investors await the Reserve Bank's December meeting minutes for a clearer policy outlook. The minutes, expected to be released next week, will provide insights into the board's discussions on potential future tightening and inflation concerns.

Last week, oil prices touched a low of $54.88 per barrel on Tuesday, the lowest since May. However, due to geopolitical uncertainties, particularly the US interception of a Venezuelan oil tanker, prices rose on Friday, with WTI crude closing at $56.54 per barrel and Brent crude at $60.47 per barrel. Nevertheless, influenced by a mix of bullish and bearish factors, oil prices exhibited a complex pattern of a short-term rebound followed by an overall decline for the week. Oil prices fell by approximately 1% this week, marking the second consecutive week of decline.

Last week, the cryptocurrency market continued its downward trend. At the beginning of the week, the market experienced a sell-off. Although Bitcoin and other crypto assets rebounded on Tuesday, the market fell again in the following two trading days, with Bitcoin currently trading around $85,000. Later in the week, before the Bank of Japan raised interest rates by 25 basis points as expected, the yen weakened, and Bitcoin strengthened accordingly, currently trading around $87,000, attempting to stabilize after two consecutive days of decline. It is worth noting that approximately $23 billion in options contracts will expire next Friday, potentially further amplifying market volatility.

The yield on the 10-year U.S. Treasury note rose to around 4.14% on Friday, reversing a brief decline in the previous session, as investors assessed the Federal Reserve's policy outlook amid signals of soft inflation and a cooling labor market. The combination of moderate inflation and signs of a cooling labor market provides the Fed with more room to cut interest rates, although the market expects policy to remain unchanged in January. Investors are closely watching the possibility of rate cuts in March and July.

Market Outlook for This Week: This week (December 22-26): With the Christmas holidays approaching and trading hours adjusted in many countries, global markets will experience a concentrated window of data releases and policy announcements.

The concentrated release of core U.S. Q3 economic data, the implementation of China's LPR (Loan Prime Rate), and the release of central bank minutes and official speeches from multiple countries, coupled with changes in market liquidity before and after the Christmas holidays, could all potentially stir market sentiment.

Thursday is Christmas Day, and financial markets in Europe and the U.S. are closed, resulting in a quiet trading atmosphere in global markets. The only major event of the day was a speech by Bank of Japan Governor Kazuo Ueda at the Japan Business Federation (Keidanren). His speech was expected to address key issues such as the normalization of Japan's monetary policy, the progress of achieving the inflation target, and the management of Japanese government bond yields. It was crucial to pay close attention to whether he would signal any policy adjustments.

Meanwhile, European and Hong Kong stock markets remained closed on Friday, with market focus shifting to Japanese economic data: Japan would release its November unemployment rate and December Tokyo CPI. The Tokyo CPI is a leading indicator of Japan's official CPI, and its year-on-year increase will influence market expectations regarding the pace of the Bank of Japan's interest rate hikes, thereby affecting the yen and Japanese stocks.

Investors should familiarize themselves with holiday trading rules in advance to prepare for potential market volatility and opportunities.

Regarding risks this week:

Risk Warning: Holidays and Policy Variables Require Close Attention

Besides core economic data and policy events, investors should be wary of three potential risks: First, trading hours on major global exchanges will be adjusted around the Christmas holidays, leading to thinner market liquidity and potential price fluctuations in some instruments, requiring vigilance against widening spreads;

Second, speeches and meeting minutes from central bank officials in various countries may release unexpected policy signals, potentially quickly correcting market pricing in interest rate paths and triggering short-term volatility in the foreign exchange and bond markets;

Third, sudden changes in the geopolitical situation and global trade environment may stimulate risk aversion, benefiting safe-haven assets such as gold and the US dollar while suppressing the performance of risk assets.

This Week's Conclusion:

This week's volatility is not a "lack of direction," but rather a "period of pricing logic reconstruction"—the global economy is in a "neither here nor there" ambiguity, policy turning points have emerged but their effects are delayed, and the market needs time to calibrate expectations.

The current market is in a "cross-validation period" of policy and data, where structural opportunities far outweigh index opportunities in this volatile environment. For a more focused analysis on specific asset classes (such as A-share technology stocks or the investment value of US Treasury bonds) or the impact of specific policies (such as the specific impact of Japan's interest rate hikes on cross-border capital flows), more in-depth thematic analyses are available.

Key events this week include: closely monitoring policy signals from China's Central Economic Work Conference, the Federal Reserve's interest rate decision, and US stock earnings forecasts. These three events will determine whether the current volatile market can break out of its current pattern.

Brief Outlook for the US Dollar Exchange Rate in 2026

In 2026, the US dollar exchange rate (centered on the US dollar index) is likely to exhibit a pattern of "downward shift in the central value, weak at the beginning and stable/slight rebound at the end." The core fundamental driver is the divergence between the Federal Reserve's interest rate cuts and the policies of non-US central banks. Technically, a clear short-term downward trend is observed, while key support and rebound opportunities exist in the medium term. The consensus among institutions is that the US dollar index will reach the 98-100 range by the end of the year (a drop of approximately 3%-5%), with differing opinions on a potential 5%-7% deeper decline and a phased rebound.

Part 1: Fundamental Drivers and Key Variables

A. Monetary Policy: Rate Cut Cycle Dominates, Narrowing Interest Rate Spreads Suppress the Dollar

Federal Reserve Path: Rates were cut to 3.50%-3.75% by December 2025. The midpoint of the dot plot for 2026 is one 25bp rate cut, with market pricing potentially for 1-2 additional cuts, bringing the final interest rate closer to the 3% neutral level. Compared to non-US central banks such as the ECB and the Bank of England, the Fed has more room for rate cuts, and the narrowing interest rate differentials between the US and Europe, and the US and the UK, will weaken the dollar's attractiveness.

Non-US Central Bank Pace: The ECB and the Bank of England may maintain a cautious policy stance due to inflation stickiness. If the Bank of Japan exits negative interest rates, the narrowing US-Japan interest rate differential will push the yen stronger, further suppressing the USD/JPY exchange rate.

Policy Risks: The change of Fed chair (May 2026) may bring policy surprises. If the new chair is dovish and accelerates rate cuts, the dollar may fall sharply; if inflation rebounds and forces a policy shift, the dollar is expected to strengthen in the short term.

B. Economic Fundamentals: Resilience and Concerns Coexist, Relative Advantage Weakening

US Economy: AI-driven innovation and consumption remain resilient, but weak manufacturing, a cooling labor market, and high fiscal deficits (increasing debt interest pressure) are dragging down growth. GDP growth in 2026 may be lower than in 2025, and the advantage relative to non-US economies is converging.

Non-US Economies: The Eurozone and the UK are gradually recovering, the Japanese economy is moderately rebounding, and emerging market growth is accelerating. Global funds may flow away from dollar assets, weakening the dollar's capital inflow support.

C. Other Key Factors

Safe-haven Demand: If global geopolitical conflicts escalate (such as the situation in the Middle East and Europe), the dollar may benefit from safe-haven buying in the short term; if risk events are concentrated in other regions, the dollar's safe-haven attributes will be strengthened.

De-dollarization and Liquidity: Diversification of global trade settlements and the diversification of central bank foreign exchange reserves have long suppressed the dollar, but the dollar's core reserve currency status is unlikely to be shaken in the short term; the increase in the US fiscal deficit and Treasury bond supply may push up the dollar's liquidity premium, providing temporary support for the dollar.

Part Two: US Dollar Technical Analysis and Key Price Level Forecast

US Dollar Index Technical Pattern Analysis

As of December 19, 2025, the US Dollar Index hovered around 98.00, down approximately 2.7% from its early December high of 101.08. Technically, the US Dollar Index exhibits a clear downward trend, having broken below several important moving averages, indicating an overall weak technical outlook.

Analyzing the daily chart, the US Dollar Index found short-term support around 98.30, but faces significant resistance above. The 100-day moving average is at 98.63, and the 200-day moving average is at 99.25, forming a dense resistance zone. More importantly, the US Dollar Index has broken below the upward trend line established since September 2025, a significant signal of technical weakness.

Looking at the weekly chart, the downward trend of the US Dollar Index is even more pronounced. The 50-week and 200-week moving averages have formed a "death cross," a bearish technical pattern. Furthermore, the US dollar index has repeatedly encountered resistance and fallen back in the 100-101 range, forming a clear top pattern and suggesting significant upward pressure.

Analyzing the monthly chart, the US dollar index remains within the upward channel that began in 2011, but is approaching the lower boundary. If the US dollar index breaks below the key support area of ​​95-96 in 2026, it could trigger a more substantial decline, potentially even falling below the September 2025 low of 96.64.

My view:

2026 will be a year of profound adjustment for the global monetary system. While the US dollar's status as the global reserve currency will not change in the short term, its relative advantage is weakening. The internationalization of the RMB, the development of digital currencies, and geopolitical changes will all have a profound impact on the international monetary system.

Investors need to adopt a more open and flexible mindset towards these changes, actively seizing investment opportunities arising from exchange rate fluctuations while ensuring manageable risk. At the same time, it is essential to recognize the complexity and uncertainty of the foreign exchange market, maintain a constant awareness of risk, and manage risk effectively.

Finally, I want to emphasize that this report is based on market conditions and available information in December 2025. However, the market is constantly changing, and actual trends may deviate from expectations due to various factors. Investors should make independent judgments and prudent decisions based on their own circumstances.

Gold Shows Bullish Trend in 2026; or Signals of a Near-End Bull Market?

Gold's fundamentals in 2026 are likely to remain strong, supported by factors such as expectations of interest rate cuts and central bank gold purchases, but it also faces the risk of a correction due to an unexpected economic recovery. While the technicals confirm a bullish trend, they also show signs of a near-end bull market, and the market is fraught with uncertainty due to the interplay between bulls and bears. The following is a detailed outlook:

I: Fundamental Trends

A. Core Supporting Factors

Strengthened Expectations of Fed Rate Cuts: As a non-interest-bearing asset, gold's attractiveness is highly negatively correlated with interest rate trends. Predictions suggest the Federal Reserve will cut interest rates by a cumulative 100 basis points in 2026. As interest rates decrease, the opportunity cost of holding gold reduces. Historically, gold has tended to perform well at the beginning of a Fed rate-cutting cycle, and this expectation will continue to support gold prices. Furthermore, news that Trump intends to appoint the moderate Hassett as Fed Chair has further strengthened market expectations for easing policies, boosting gold prices.

It will still reach 70 tons. Meanwhile, gold accounts for only 15% of the foreign exchange reserves of emerging market central banks, far lower than the 30% in developed economies. Under the trend of de-dollarization, their gold allocation ratio is expected to further increase, laying a solid foundation for gold prices.

Safe-haven demand and rigid supply support: Current geopolitical conflicts such as the Middle East crisis have not subsided, and concerns about the global sovereign debt crisis remain. Once the situation deteriorates, gold's safe-haven attributes will be quickly activated, attracting safe-haven funds to flow in. In addition, the annual output of gold from mines is stable at around 3,500 tons, with insufficient supply elasticity. Against the backdrop of strong demand, this supply and demand pattern will further support gold prices.

B. Main suppressive factors

The World Gold Council points out that if the global economy recovers more than expected, and reflation returns, interest rates may continue to rise, and the US dollar is also expected to strengthen. At that time, funds will tend to flow into other financial assets with higher returns, reducing the attractiveness of gold and potentially leading to a 5%-20% pullback. Gold prices may even fall back to the $3500-$3800/ounce range.

II. Technical Analysis

The bull market trend continues, with clear breakout signals: Gold prices have achieved nearly two years of continuous growth, with the long-term price chart showing a "parabolic rise," and the monthly chart showing a near-straight upward trend, indicating that the bull market has entered an acceleration phase. At the end of 2025, gold prices successfully broke through the previously formed "bull flag" pattern. This pattern has appeared multiple times in this bull market, with each consolidation accumulating sufficient upward momentum. This breakout is a core positive technical signal, laying a strong foundation for the 2026 trend. Meanwhile, the $4250 level has become a key support level. The establishment of this level provides strong support for further price increases. Even if it breaks below this level in the short term, the 50-day moving average and the long-term upward trend line will provide secondary support.

Signs of a bull market nearing its end are emerging, and a trend reversal should be guarded against: The current gold rally is nearing the end of the cycle that began in 2015-2016. He believes that even if gold prices break through the $4,381 resistance level and challenge the psychological barrier of $5,000, it will only be the "last wave of the rally." His judgment is based on the wave cycle patterns of precious metals independent of macroeconomic narratives, and the current "parabolic rise" pattern usually indicates that a bull market is nearing its end. Although there may be a final surge, there is a risk of a correction lasting several years, and a trend reversal should be watched closely.

Key price levels and market correlations require close attention: On the one hand, the $4,381 resistance level needs to be monitored, as there may be strong profit-taking pressure near this level; on the other hand, the current phenomenon of silver leading gold's rise is rare, and the silver market is clearly overbought. If silver prices correct sharply, gold will likely face pressure in tandem, which is a correlation risk that needs to be watched for in 2026.

The gold market in 2026 stands at a historic crossroads. Looking back at 2025, gold astonished the global market with a gain of over 60% and more than 50 record highs. Looking ahead to 2026, the gold market faces a complex situation with both opportunities and challenges.

From a fundamental perspective, the gold market in 2026 has a solid foundation. The Federal Reserve's rate-cutting cycle will continue, and although the room for further cuts is limited, one or two more rate cuts will still reduce the opportunity cost of holding gold. Global central bank demand for gold remains strong, with 95% of surveyed central banks planning to continue increasing their holdings in 2026. The diversification needs of emerging market central banks' reserves provide long-term support for gold prices.

Geopolitical risks remain high, with hotspots such as the Russia-Ukraine conflict, the Middle East situation, and the Taiwan Strait issue potentially escalating at any time, driving up safe-haven demand. While inflation is showing a downward trend, it will still remain above 2.5%, providing inflation-hedging support for gold.

My Viewpoint:

Looking further into the future, gold, as a safe-haven asset for "buying gold in turbulent times" and a value asset for "collecting in prosperous times," will continue to solidify its position in the global financial system. Against the backdrop of questionable dollar credibility, reshaping geopolitical landscapes, and persistent inflationary pressures, gold's strategic allocation value will become increasingly prominent. However, investors also need to recognize that there is no market that rises forever; rational investment, risk control, and long-term commitment are key to success in the gold market.

The gold market in 2026 is destined to navigate through volatility, seeking certainty amidst uncertainty. For prepared investors, this presents both a challenge and an opportunity.

Is the fundamental outlook for WTI crude oil in 2026 generally bearish?

The fundamental outlook for WTI crude oil in 2026 is generally bearish, primarily due to the supply-demand imbalance caused by oversupply and weak demand. However, unforeseen factors such as geopolitical conflicts and OPEC+ production cuts may bring about a temporary rebound. Technically, the market is currently showing bearish signals, with clear key support and resistance levels. A break or fall below these levels will guide the subsequent trend. The following is a detailed outlook:

I: Fundamental Outlook

A. Supply Side:

Oversupply pressure dominates, with increased production primarily from non-OPEC countries: Crude oil production from non-OPEC countries such as the United States, Brazil, Canada, and Guyana continues to grow. Even with a slowdown in the growth rate of US shale oil production, the overall increase will continue to put supply pressure on the market. The International Energy Agency (IEA) predicts that the global crude oil market will experience a supply surplus of over 4 million barrels per day in 2026, while Goldman Sachs has also mentioned a potential oversupply of 2.2 million barrels per day in 2026.

The return of Russian oil exacerbates the oversupply risk: If Russia and Ukraine reach a reconciliation, Russian oil will further return to the international market, which will further expand the oversupply situation. However, if the US imposes new oil sanctions on Russia, it may conversely suppress Russian oil supply, alleviating some of the oversupply pressure.

Uncertainty surrounding OPEC+ production cuts: This is a crucial variable on the supply side. Currently, the market has not seen any large-scale production cut plans, but if oil prices continue to decline in 2026, OPEC+ will likely adjust its strategy and introduce more substantial production cuts to curb the price drop, which will be a key factor in alleviating the oversupply.

B. Demand Side: Weak Growth, Suppressed by Multiple Factors

Global Economic Slowdown Drags Down Demand: The slowdown in global economic growth is the core factor constraining crude oil demand. An economic downturn will lead to a contraction in demand from major oil-consuming sectors such as industrial production and transportation, thereby reducing oil purchases.

A stronger US dollar will suppress purchases: International oil is priced in US dollars. If the dollar continues to be strong in 2026, the cost of oil purchases for other countries will increase accordingly. This will directly lead to these countries reducing their oil imports, indirectly suppressing global oil demand.

Limited potential demand growth: Although the International Energy Agency has mentioned that the development of artificial intelligence may lead to a surge in electricity demand, bringing new variables to the energy market, the timing and extent of this demand transmission to the oil sector are still unclear. While a rebound in demand from major oil-consuming countries such as China and India could balance market supply and demand to some extent, the probability and strength of such a rebound currently lack clear support.

II: Technical Outlook

Key levels guide trend direction

Key support level: WTI crude oil has fallen below the important $55/barrel level on December 16, 2025. From a technical perspective, if oil prices continue to fall below this level in 2026 and fail to recover, breaking through the three-year downward channel, the probability of further declines will increase significantly, likely reaching $50/barrel, and possibly even $45/barrel. Goldman Sachs even suggests that in extreme cases, oil prices could fall to the $40 range.

The upper resistance level is clear: the area around $79/barrel, corresponding to the 200-week simple moving average, is a key resistance level. If oil prices can break through this level and hold above $80, it means the previous downward trend may have reversed, potentially initiating a rebound.

Technical Indicators and Forecasts:

Short-term indicators show volatility: Previous analysis indicated that WTI crude oil prices are below the SMA50 (50-day moving average) and SMA200 (200-day moving average), but the moving averages are relatively smooth. The MACD is hovering near the zero line, and the RSI has entered the neutral zone, suggesting the market is entering an accumulation phase with gradually increasing buyer interest. It is expected that prices may rise to the resistance zone of $65-$66 by the end of 2025.

2026 likely to see sideways consolidation: The WTI crude oil market is predicted to consolidate sideways in 2026 with moderate volatility. The average monthly price is likely to remain around $62. On the other hand, periods of rising and falling prices will alternate, and volatility will gradually increase. The highest price in the second quarter is expected to reach $68.67, and the lowest price in the first quarter may reach $52.79. Furthermore, the fact that WTI crude oil remained below its 100-day moving average for the longest period in nearly a year in 2025 also released a strong bearish signal. If this indicator fails to reverse, it will continue to exert technical downward pressure on oil prices.

The WTI crude oil market will face unprecedented challenges in 2026. The dual pressures of oversupply and weak demand may cause oil prices to hover at low levels in the $50-60/barrel range. Investors need to be fully prepared for risk and adopt a cautious investment strategy. At the same time, it should be recognized that extremely pessimistic market sentiment may contain opportunities; when market consensus is highly unified, it is often a harbinger of a market reversal.

Investors are advised to closely monitor changes in the aforementioned key variables and adjust their strategies promptly according to market conditions. In the current market environment, risk management is more important than the pursuit of returns. Only when risks are controlled can potential investment opportunities be seized.

Will the AUD/USD continue its upward trend in 2026?

The Australian dollar rebounded from 0.5914 to 0.6650 against the US dollar in 2025, primarily due not to Australia's strong economic performance, but rather to the weakness of the US dollar itself: weakening US employment, the Federal Reserve's resumption of interest rate cuts, and the government shutdown eroded the dollar's credibility; while Australia's stable economy and rising inflation led to tighter policy expectations, and the interest rate differential and confidence advantage drove the Australian dollar higher. If the US dollar continues to be under pressure in 2026, the Australian dollar may continue its upward trend.

From the trough: The Australian dollar's remarkable V-shaped reversal

2025 was a volatile year for the Australian dollar against the US dollar. At the beginning of the year, the exchange rate hovered around 0.6140, but on April 9th, it briefly dipped to a low of 0.5914. Within a few short months, the Australian dollar seemed to have been thrown into an abyss. However, this was not the end of the story. As the situation reversed, the Australian dollar began a strong recovery, reaching a high of 0.6707 on September 17th. Currently, the exchange rate is stable at around 0.6650, representing a cumulative increase of approximately 7% for the year.

This V-shaped price movement was not driven by a single event, but rather by the ebb and flow of two macroeconomic narratives. The initial driver was deteriorating risk sentiment—the US announced tariff increases, triggering global market concerns about the trade outlook. As a currency highly correlated with commodities and international trade, the Australian dollar was the first to be sold off. Investors quickly reduced their exposure to cyclical currencies, putting downward pressure on the Australian dollar.

However, the real turning point came in the second half of the year. At this point, the market's focus shifted from external shocks to the structural problems within the US itself. The US dollar index fell from 110.18 at the beginning of the year to 96.22 on September 17th, and has since failed to return above 100. The annual decline exceeded 10%, a relatively rare annual correction since the era of floating exchange rates. This magnitude of weakening signifies a shift in the logic of foreign exchange pricing: it's no longer simply about chasing a "strong dollar," but rather comparing the relative strengths and weaknesses of each country's fundamentals and institutional credibility. It is against this backdrop that the previously unremarkable Australian dollar unexpectedly became a beneficiary.

The US Dollar's Own "Beats the Ball"

If the Australian dollar's decline in the first half of the year was due to "taking medicine when others are sick," then the rebound in the second half is more like "walking while others stumble." The key force truly driving the Australian dollar's recovery was not Australia's own explosive growth, but rather the multiple blows to the US dollar's credibility.

First, there was the change in monetary policy. The Federal Reserve had already cut interest rates three times in 2024, pausing briefly after entering 2025. However, with a significant weakening of the labor market, easing resumed. From September, the Fed implemented three more rate cuts within three months. More worryingly, inflation did not fall as expected. In September, core CPI still reached 3.0% year-on-year, and core PCE rebounded to 2.8%, both far exceeding the 2% target. Theoretically, such data should support higher interest rates, but in reality, employment pressures outweighed everything else.

An even bigger blow came from the political level—in the fourth quarter of 2025, the US federal government shut down for six weeks (October 1 to November 12), causing a disruption in the release of many key economic data, creating an "information vacuum." When accurate data is unavailable to the market, decision-making becomes reliant on speculation and sentiment, significantly reducing policy predictability. At this point, the US dollar is no longer seen as a natural safe-haven asset, but rather as a risk asset that needs to be reassessed. Analysts point out that the US dollar index has fallen by more than 10% throughout the year, exhibiting characteristics of structural adjustment rather than short-term fluctuations.

Under this logic, the Australian dollar doesn't need to "extraordinarily perform"; as long as the US continues to release negative signals, it can gain support. Every time the Federal Reserve releases expectations of further easing, or when controversy arises regarding policy direction, it translates into a weakening of the US dollar, indirectly pushing up the Australian dollar.

What will 2026 bring? A game of leadership change and interest rate differential reassessment

Entering 2026, the core variable determining the Australian dollar's direction against the US dollar will still depend more on the US dollar. Although the US economy is expected to achieve some recovery through interest rate cuts, with the IMF predicting its growth rate may return to around 2.3%, structural contradictions remain: inflation remains above target, while employment remains weak, leaving policymakers in a dilemma of "both stabilizing growth and controlling prices."

A bigger variable lies in the leadership change at the Federal Reserve. Current Chairman Jerome Powell is expected to step down in May 2026, and his successor is likely to be either Kevin Hassett or Kevin Warsh. For the foreign exchange market, the key is not the candidate themselves, but how the market interprets their policy inclinations. If the new chairman is perceived to prioritize employment and growth and be willing to tolerate a lower interest rate environment, the dollar's interest rate support will further weaken.

The market has already priced in this expectation. According to calculations using interest rate swaps, the expected endpoint for the Fed's policy rate has fallen to the 3.00%-3.25% range. Interest rate futures show that the probability of rates falling into this range by December 2026 is approximately 31.8%, meaning the market has already priced in the possibility of at least two additional rate cuts. If this occurs, the dollar's interest rate advantage will continue to narrow.

The market has already priced in this expectation. According to calculations using interest rate swaps, the expected endpoint for the Federal Reserve's policy rate has fallen to the 3.00%-3.25% range. Interest rate futures indicate that there is approximately a 31.8% probability that rates will fall within this range by December 2026, meaning the market has already priced in the possibility of at least two additional rate cuts. If this comes to pass, the dollar's interest rate advantage will continue. The "risk" itself possesses strong pricing power. Especially against the backdrop of continued interest rate cuts by the Federal Reserve, as long as the Reserve Bank of Australia holds its rate steady or even raises it, short-term interest rate differentials will tend to support the Australian dollar.

Overall, the Australian dollar's rebound in 2025, while seemingly a technical correction, is actually a result of a reshaping of the global pricing framework—when the dollar's luster fades, seemingly ordinary but stable economies gain new valuation space. And in 2026, this contest may have only just entered its second act.

Overview of Important Overseas Economic Events and Matters This Week:

Monday (December 22): UK Q3 Production-Based GDP Annualized Final Reading (%); Canada's National Economic Confidence Index for the Week Ending December 19

Tuesday (December 23): Australia's ANZ Consumer Confidence Index for the Week Ending December 21; US ​​Q3 Real GDP Annualized Quarterly Preliminary Reading (%); Canada's October Seasonally Adjusted GDP Monthly Rate (%); US October Industrial Production Monthly Rate (%) US December Conference Board Consumer Confidence Index; Reserve Bank of Australia releases December Monetary Policy Meeting Minutes

Wednesday (December 24): US API Crude Oil Inventory Change (in thousands of barrels) for the week ending December 19; US Initial Jobless Claims (in thousands) for the week ending December 20; Bank of Canada releases Monetary Policy Meeting Minutes

Thursday (December 25): Christmas Day, markets closed

Friday (December 26): Japan December Tokyo CPI YoY (%); Japan November Unemployment Rate (%)

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