[MARKET ANALYSIS] Dollar takes a breather after strengthening post-ISM data, while all focus turns to the RBA

DXY: -0.1%

• Takes a breather after advancing against all G10 peers yesterday as yields climbed and participants digested better-than-expected ISM Manufacturing PMI data, which printed its first expansion in 12 months and at the fastest pace since 2022. There were some recent Fed comments in which Bostic argued that one or two rate cuts would put them at neutral and said it's premature to say that the inflation job is done, while it was also announced that the BLS have delayed the December JOLTS report due today and the January NFP report that was scheduled for Friday owing to the partial government shutdown.

EUR/USD: +0.2%

• Nursed losses after having recently suffered against the firmer dollar and returned to 1.1800 territory, while it was also reported that France adopted the 2026 state budget after the government survived no-confidence votes.

GBP/USD: +0.1%

• Eked slight gains, albeit with price action contained amid quiet pertinent newsflow and a sparse calendar for the UK heading into Thursday's BoE meeting.

USD/JPY: -0.1%

• Slightly eased back from yesterday's peak after rallying alongside the recent dollar strength and the broad improvement in risk sentiment, while Japanese Finance Minister Katayama also clarified regarding PM Takaichi's comments over the weekend and said the PM talked about FX benefits as a general fact and didn't specifically emphasise merits in a weak yen.

Antipodeans: AUD/USD +0.3% / NZD/USD +0.3%

• Gained amid the rebound in risk appetite and metal prices, while the focus is on the RBA meeting in which the central bank is expected to hike rates for the first time in over two years.

The dollar is showing a slight pullback after a strong rally fueled by positive ISM Manufacturing PMI data, indicating robust economic activity. As market participants recalibrate post-data, all eyes are now on the RBA's upcoming meeting, where expectations run high for a rate hike, potentially influencing AUD and broader risk sentiment significantly.