Ella 
The Australian dollar extended gains for a third consecutive session on Tuesday. The rally was fueled by hawkish comments from Reserve Bank of Australia Governor Bullock. In addition, the hawkish tone released by the minutes of the Reserve Bank of Australia’s November meeting, rising commodity prices, and investors’ optimistic expectations that China may take more stimulus measures also boosted the AUD/USD.
As Reserve Bank of Australia Governor Bullock noted, Australia’s labor market appears to be strong. Reserve Bank of Australia Governor Bullock believes that progress in employment will continue. In addition, Bullock also pointed out that underlying demand, not just supply issues, pose a challenge to inflation, making inflation an important issue in the next year or two.
Minutes of the Reserve Bank of Australia’s November meeting showed the board acknowledged there were “credible reasons” to block an immediate interest rate hike, but argued the case for tightening policy was stronger due to rising inflation risks. The decision to tighten monetary policy further will depend on data and risk assessments. The minutes emphasized the importance of preventing even a small rise in inflation expectations. The board predicts one or two more rate hikes, while rising home prices suggest tightening may not be too harsh.
The Chinese government is expected to take steps to support the real estate industry by drafting a list of 50 eligible private and state-owned developers, Bloomberg reported, citing sources. The list is expected to guide financial institutions in providing support to real estate through various means including bank loans, debt and equity financing.
The U.S. dollar index (DXY) extended its losses and is near three-month lows on improving risk appetite and falling U.S. Treasury yields. Despite growth in the U.S. economy, the U.S. dollar remains weak in the short term.
Investors will likely focus on U.S. existing home sales and the Chicago Fed national activity index. In addition, the Federal Reserve (Fed) will also release the minutes of its recent meeting.
