The Australian dollar rose in European trading on Thursday against a basket of major currencies, extending gains for a third consecutive session against the US dollar and reaching its highest level in five weeks, as buying momentum strengthened amid fading expectations that the Reserve Bank of Australia will cut interest rates at next week’s policy meeting.

Market expectations for stronger economic performance in Australia during the fourth quarter have grown, alongside a renewed acceleration in prices and an uptick in inflation — factors that increase pressure on policymakers at the RBA and support a more hawkish policy stance to counter resurgent inflation and maintain price stability.

Price Overview

• AUD/USD climbed 0.2% to 0.6615, the highest since 29 October, up from today’s opening level of 0.6601, after touching an intraday low of 0.6599.

• The Australian dollar ended Wednesday’s session up 0.55% against the US dollar, marking its second consecutive gain amid improving risk appetite across global markets.

Australian Interest Rates

• Recent data from Australia showed a decline in unemployment and an increase in new jobs in October, highlighting ongoing tight conditions in the labor market.

• These figures strengthened expectations of improving economic activity in the fourth quarter, coinciding with a renewed rise in inflation and price pressures.

• As a result, the likelihood of an RBA rate cut at next week’s final meeting of the year has diminished significantly.

• Market pricing currently places the probability of a 25-basis-point rate cut in December at just 10%.

Kevin Hassett, director of the National Economic Council, is seen by prediction markets as the frontrunner to replace Federal Reserve Chair Jerome Powell.

Bonds have long served as a stabilizing force for investors, offering diversification and protection in periods of equity volatility. But that role could come under threat — however unlikely — if President Donald Trump selects his top White House economist, Kevin Hassett, to lead the Federal Reserve.

Lawrence Gillum, chief fixed-income strategist at Charlotte-based brokerage LPL Financial, warns that a Fed under Hassett might prioritize economic growth over price stability. Such a shift could unanchor inflation expectations and undermine the usefulness of bonds within diversified portfolios. Gillum describes this as a “non-base case,” but one that deserves attention.

“We believe inflation will ultimately return to 2% and that the Fed will remain a credible institution,” Gillum said in a phone interview Tuesday. “For now, rate markets seem comfortable with the prospect of a Hassett appointment. But if markets sense that policy is tilting more toward growth at the expense of inflation control, it would put bonds in a difficult position.”

Bonds’ traditional role under pressure

For decades, bonds have balanced equity volatility during periods of market stress, forming the defensive anchor of the classic 60/40 portfolio used by moderate-risk investors.

But that stability depends on a low-inflation backdrop and a central bank committed to price stability. Rising inflation erodes the real value of bonds’ fixed cash flows, while a central bank more focused on boosting growth tends to keep rates lower for longer than economic conditions justify.

Investors saw these dynamics firsthand in 2022, when both stocks and bonds fell sharply. It marked one of the worst years in history for the traditional 60/40 mix, and the usual negative correlation between the two asset classes has struggled to re-establish itself since.

Hassett emerges as Trump’s likely pick

Over the weekend, Trump said he knows whom he will select to lead the Federal Reserve but declined to reveal whether that person is Hassett, who currently heads the National Economic Council.

Prediction markets such as Kalshi and Polymarket have assigned at least an 80% probability to Hassett becoming Trump’s choice, as of Tuesday. In a CBS “Face the Nation” interview aired Sunday, Hassett said he was proud to be considered but denied a Bloomberg report describing him as the clear favorite.

Hassett’s public comments suggest he strongly favors deeper rate cuts. In November, he told Fox News that if he were Fed chair, he “would be cutting rates right now.” Last month, at a Washington Economic Club event, he advocated a 50-basis-point cut and agreed with Trump that interest rates could be “much lower.”

A calm market — for now

So far, markets have reacted calmly to the possibility of Hassett taking over the Fed. Market-based inflation expectations have risen only slightly since Sunday, and the Treasury yield curve has steepened only modestly — signaling limited investor concern at this stage.

Gillum said he is watching the five-year breakeven inflation rate — a measure of expected inflation over the next five years — which stood around 2.3% on Tuesday. But he warned that if it rises meaningfully toward 3%, with incremental moves toward 2.5% and 2.7% over several weeks, it would become “a problem.” Much will depend, he said, on whether Hassett would be “determined to cut rates regardless of inflation.”

Gillum added that the larger risk is a break from past Fed norms: “If Hassett’s appointment signals a shift toward prioritizing the growth mandate over price stability, then bonds fall apart.” Still, he noted, “It’s a warning signal, not something we expect to happen — at least not immediately.”

Recent market performance

On Tuesday, trading in the bond market was relatively subdued, with most Treasury yields little changed — except for one-month and two-month bill yields, which fell 7 and 10 basis points respectively to 3.84% and 3.75%, as traders increased bets on another rate cut next week and again in January.

Major equity benchmarks — the Dow Jones, S&P 500, and Nasdaq — all closed higher.

US stock indexes rose on Wednesday, reversing earlier losses that followed the release of weak economic data.

Figures from ADP showed that the US private sector shed 32,000 jobs in November, defying Dow Jones forecasts that had pointed to a gain of 40,000 positions.

Later this week, the US will publish Personal Consumption Expenditures data — the Federal Reserve’s preferred inflation gauge.

According to CME Group’s FedWatch tool, markets are pricing in nearly an 89% probability of an interest-rate cut at the upcoming meeting, a sharp increase from expectations in mid-November.

As of 15:52 GMT, the Dow Jones Industrial Average was up 0.4% (182 points) at 47,662. The broader S&P 500 rose 0.2% (11 points) to 6,839, while the Nasdaq Composite gained 0.1% (10 points) to 23,423.

Copper prices hit a fresh record on Wednesday after a sharp surge in orders from South Korea and Taiwan triggered the largest wave of warehouse withdrawals from the London Metal Exchange (LME) since 2013.

Copper rose an additional 2.4% at the start of Wednesday’s session on the LME, surpassing $11,400 per metric ton and breaking the previous record set just two days earlier.

Prices have now climbed roughly 30% since the start of the year, with most of the gains concentrated in the second half, driven by supply disruptions in major producing countries and speculation over potential US import tariffs.

This year’s rally has been fueled in part by threats from the Trump Administration to impose tariffs on the metal — a key input for electrification and power-grid expansion. Although Trump has temporarily backed away from implementing tariffs, traders have been stockpiling copper inside the United States, pushing Comex prices higher and tightening supplies elsewhere.

Demand indicators have also turned more optimistic in recent weeks, supported by better-than-expected economic performance despite trade-related disruptions stemming from tariff policy.

Copper — used across industry, electronics, electrification, and construction — is widely viewed as a barometer of economic health.

On the supply side, several accidents at mines in Chile and Indonesia earlier this year constrained global production and tightened physical availability.

More recently, traders have built up positions in anticipation of a deeper supply deficit next year, according to analysts and company executives who spoke at a Fastmarkets webinar last week.

Participants noted that macroeconomic conditions will be the dominant force shaping copper markets and also the biggest source of uncertainty for demand and pricing in 2026.

Scott Crooks, senior analyst at Chilean state-owned giant CODELCO, said: “The macroeconomic picture is the most important factor, because ultimately it drives the demand numbers.” He added: “It’s the tweets, the policies coming from various countries as they try to reposition themselves in this new world we’re living in. I think that’s what will really make the difference.”