Cool Hand Luke

December 09, 2025

Elias Haddad

Markets are cool into tomorrow’s Fed decision.

RBA delivers a hawkish hold. Australian bonds fall, AUD marginally higher.

BOJ Governor offers no new policy guidance. JPY underperforms.

USD is holding below its 200-day moving average, 10-year Treasury yields eased back a little after testing the top-end of its 3.95%-4.20% range in place since September, and US equity futures are treading water.

The US ADP weekly employment preliminary estimate is due today (1:15pm London, 8:15am New York). The last weekly report from November 25 showed that for the four weeks ending November 8 private employers shed an average of -13.5k jobs a week while the November ADP jobs print was -32k.

The US October JOLTS report (3:00pm London, 10:00am New York) will be a bigger job check ahead of Fed showtime. Further declines in the hiring rate, quit rate and vacancy-to-unemployed ratio would add to signs of worsening labor demand. If so, the Fed funds futures curve will likely adjust lower against USD.

AUSTRALIA

RBA delivers a hawkish hold. As was widely expected, the RBA Board voted unanimously to keep the policy rate unchanged at 3.60% for a third consecutive meeting. The RBA also stressed it’s done easing, warning “the risks to inflation have tilted to the upside” while dropping past reference to two-way uncertainty about the outlook.

Importantly, RBA Governor Michele Bullock stressed “I don’t think there are interest rate cuts in the horizon for the foreseeable future…The question is, is it just an extended hold from here or is it possibility of a rate rise. I couldn’t put a probability on those but I think they’re the two things that the board will be looking closely at coming into the new year.” RBA cash rate futures imply nearly a full 50bps rate increase to 4.10% over the next twelve months.

AUD/USD initially slipped, then bounced back to recent highs near 0.6650, with limited follow-through given it’s already near the level implied by AU-US interest rate expectations. AUD/USD faces major resistance at 0.6700. Tomorrow’s Fed outcome will dictate whether AUD/USD clears it or stalls below it.

JAPAN

JPY is underperforming. Bank of Japan (BOJ) Governor Kazuo Ueda struck a balance tone in his latest interview. Ueda noted he does not see very high risk of too much inflation at present but cautioned that “upward pressure on wages will continue in the future” due to a labor shortage.

The swaps curve price in 90% odds of a 25bps BOJ rate hike to 0.75% on December 19. Tighter monetary policy paired with Japan’s government latest fiscal stimulus package is JPY positive. We see room for USD/JPY to adjust lower towards the level implied by US-Japan two-year bond yield spreads around 140.00.

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