Key Takeaways

  • The US dollar extended its post-ISM data weakness, providing modest relief to Asian currencies like the Indian rupee, though underlying pressures persist.
  • Asian equities broadly advanced, led by Chinese stocks hitting four-year highs, as risk sentiment improved despite mixed regional data.
  • Key regional developments included Japan's monetary base contracting for the first time in 18 years and Australia's services PMI showing slowing growth but intensifying price pressures.
  • NVIDIA's major product launch at CES 2026 and evolving geopolitical narratives around Venezuela added layers to the market's macro assessment.

A Constructive Session: Risk-On Tone Lifts Assets

The Asia-Pacific trading session on Tuesday was characterized by a clear, if measured, improvement in risk appetite. This sentiment, carrying over from a soft US ISM manufacturing print on Monday that dampened the US dollar, provided the foundational support for regional assets. Asian shares climbed, with the Hang Seng leading major indices with a 1.6% gain and Chinese benchmarks rallying to four-year highs. The notable exception was Australia's S&P/ASX 200, which dipped 0.3% as traders exhibited caution ahead of a crucial domestic CPI release.

In the currency arena, the dollar's broad weakness was the dominant theme. The DXY index extended its retreat, allowing pro-cyclical and commodity-linked currencies to advance. The Australian and New Zealand dollars were clear beneficiaries, with AUD/USD and NZD/USD extending gains. The euro and British pound also edged higher, with sterling finding an additional prop from a slight uptick in the UK BRC shop price index, a reminder of the persistent inflation narrative in some Western economies.

Regional Data Deep Dive: Inflation and Policy Normalization

Beneath the surface of the risk-on move, critical regional data points painted a nuanced picture for monetary policy trajectories.

In Australia, the Judo Bank Services PMI for December slipped to 51.1 from 52.8, indicating a slowdown in the expansion of the dominant services sector. However, the details were more concerning for the Reserve Bank of Australia (RBA). The report highlighted that input and output price pressures intensified, suggesting services-led inflation is proving sticky. This creates a complex backdrop for the RBA, which meets tomorrow, with slowing growth momentum but persistent inflationary impulses. All eyes are now on Wednesday's November CPI data, which will heavily influence the central bank's tone.

In Japan, the Bank of Japan released data showing the country's monetary base contracted in 2025 for the first time in 18 years. This is a stark quantitative signal of the BOJ's ongoing exit from its decades-long ultra-loose monetary policy. The sharp drop in liquidity in December underscores the central bank's commitment to normalization, reinforcing market expectations for continued bond purchase tapering and further, gradual rate hikes in the year ahead.

Geopolitical and Corporate Crosscurrents

The session was not devoid of event risk. Geopolitical attention remained on Venezuela, where the new US administration under President Trump has set strict conditions for recognizing a new leader, including a halt to oil sales to China. Concurrently, the administration stated US oil firms are ready to invest, and JPMorgan analysts noted the near-term oil market impact may be limited, with upside dependent on the scale of future US involvement. This narrative adds a layer of uncertainty to global oil supply forecasts.

On the corporate front, the tech sphere was electrified by NVIDIA's unveiling of its next-generation Rubin platform and Vera Rubin superchip at CES 2026. CEO Jensen Huang announced a tenfold cost reduction for AI server systems compared to the prior Blackwell generation, targeting agentic AI and advanced reasoning models. This announcement reinforces the relentless pace of innovation driving the tech sector and its significant implications for productivity and sectoral investment flows.

What This Means for Traders

For active traders, this session offers several actionable insights:

  • FX Strategy: The dollar's sensitivity to softening US data is evident. Traders should watch for follow-through weakness if upcoming US data (like JOLTs job openings and Friday's NFP) disappoints. Pairs like AUD/USD and NZD/USD may offer momentum opportunities on breaks of key technical levels, but be wary of AUD volatility around the CPI print and RBA meeting.
  • Asian Currency Watch: The soft dollar provides a temporary reprieve for currencies like the Indian rupee, but domestic pressures (oil prices, RBI policy) remain. Look for rallies in USD/INR as potential selling opportunities unless the dollar downtrend accelerates significantly.
  • Equity Sector Plays: The surge in Chinese stocks to multi-year highs suggests a potential shift in sentiment. Traders might look for ETF opportunities (FXI, MCHI) or related commodity exposures. The tech-led rally, bolstered by NVIDIA, continues to favor semiconductor and AI-related equities across Asian markets.
  • Central Bank Divergence: The contrast between the BOJ's tightening (evidenced by the monetary base contraction) and a potentially cautious RBA (facing growth-inflation trade-offs) creates interesting rate differential plays. Monitor USD/JPY for signs of the pair breaking its recent range if US yields fall further.
  • Risk Management: The positive risk sentiment is fragile, built on soft US data. Be prepared for swift reversals if geopolitical tensions (Venezuela, other flashpoints) escalate or if key US data surprises to the upside, reviving the dollar.

Conclusion: A Fragile Equilibrium Ahead of Key Catalysts

The Asia-Pacific session established a fragile equilibrium of soft dollar and firm risk assets. However, this equilibrium faces immediate tests. Wednesday's Australian CPI and RBA decision will be pivotal for AUD crosses and regional bond yields. Globally, the US labor market data and the evolving Venezuela situation will command attention. The underlying themes—persistent services inflation in some economies, continued policy normalization in Japan, and transformative tech innovation—are durable. Traders should leverage the current dollar softness and equity strength with a disciplined eye on these looming catalysts, ready to adjust positioning as the market's assessment of growth, inflation, and geopolitics evolves in the coming days. The path of least resistance remains tentatively pro-risk, but the foundation requires constant reassessment.