- Fed served DOJ subpoenas, sparking fears of political interference
- Republican resistance reduces risk of Trump stacking the FOMC
- Aussie boosted by robust household spending and rate hike prospects
Summary
Markets started the week on edge after Jerome Powell revealed the Fed had been served DOJ subpoenas, raising concerns about political interference in monetary policy. Those fears eased as Republican senators vowed to block Trump’s Fed nominees, reinforcing confidence that independence will hold. Risk appetite recovered, with the Australian dollar outperforming thanks to strong domestic spending data that keeps the RBA on track for a possible February hike.
Fed Independence Fears Fade
Jerome Powell revealed over the weekend that the Fed had been served grand jury subpoenas from the Department of Justice (DOJ), raising fears of political interference in monetary policy. While the official explanation points to testimony on renovations at the Fed’s headquarters, the timing suggests pressure aimed at the central bank. For markets, that matters.
Why is this such a concern? If policy starts to look political rather than data-driven, you risk a second coming of the “sell America” trade, similar to what followed Liberation Day in 2025. That would mean a weaker dollar as reserve confidence fades, higher long-end yields as term premiums widen, and risk assets generally under pressure as uncertainty grows.
However, a pushback from Republican lawmakers in response to the subpoenas changed the tone in markets on Monday. Vows from Thom Tillis and Lisa Murkowski to block any Trump Fed nominees until the DOJ investigation is resolved build confidence that independence will hold. Without their support, Trump’s pick for Fed chair is unlikely to be confirmed, making it far harder to stack the FOMC with policy doves aligned with his views, especially if Lisa Cook’s dismissal is ruled illegal by the U.S. Supreme Court. That would reduce the odds of politically driven rate cuts or personnel changes that skew the committee’s reaction function.
That likely explains today’s price action. Risk appetite has recovered as traders reassess the political and policy implications, with high-beta currencies like the Australian dollar outperforming. Domestic factors have also helped, with strong household spending data reinforcing expectations that the RBA may need to tighten policy further, adding to the Aussie’s appeal on interest rate differentials.
Solid Spending Keeps RBA Hike Risk alive
Australian household spending surged again in November, rising 1% after an upwardly revised 1.4% gain in October. It marked the first back-to-back 1%+ monthly increases since late 2022 and saw the annual growth rate accelerate to 6.3%, the strongest since September 2023. Discretionary categories led the charge, supported by major events and Black Friday sales. With Q4 averaging 1.2% so far compared to just 0.3% in Q3, real household consumption looks set to deliver another solid contribution to GDP without a major unwind in December.
The strength in spending keeps the RBA on track to consider another rate hike as early as February, provided inflation trends in Q4 mirror those seen in Q3. Robust demand, particularly in discretionary segments, suggests underlying momentum in the largest sector in the economy remains firm. If price pressures persist alongside this level of consumption, the case for a further increase in the cash rate will be hard to ignore, likely underpinning the Australian dollar on a pure interest rate differential basis.
AUD/USD Rangebound Following Bullish Move
Source: TradingView
Looking at AUD/USD on the daily chart, the pair looks to be settling into a new range following recent gains, attracting bids on moves towards support at .6660 with bullish probes running into offers layered above .6720.
That’s the initial range traders should focus on, rather than the bullish signal generated by the engulfing candle that printed on Monday. Dips towards .6660 could allow for longs to be set with a stop beneath for protection, targeting upside. But if we see more unconvincing price action above .6720, shorts could be established with a stop above .6750. That level was often tested from either side during lengthy periods in 2025 and again repelled a bullish breakout in the first attempt in 2026.
The message from the oscillators is more neutral than bullish with RSI (14) recording a string of lower highs and lower lows while remaining above 50, while MACD has crossed the signal line from above but remains in positive territory. With no firm message on directional risks, the preference would be to take cues from price action ahead of U.S. CPI on Tuesday and the potential legal ruling on Trump’s reciprocal import tariffs on Wednesday.
