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· The Australian dollar held firm on Tuesday near a 4-1/2-month peak on optimism about U.S.-China trade relations, while the British pound was on the defensive as worries resurfaced about a chaotic departure from the European Union.

The Australian dollar fetched $0.69175 flat in Asia but within striking distance of its Dec. 13 peak of $0.6939, its highest level since late July. The currency has gained over 1% in the past four sessions.

Other major currencies moved little in holiday-thinned trade on Tuesday.

The euro stood almost flat at $1.1087 while the yen was little changed at 109.40 yen per dollar.

The dollar index stood at 97.689, off Monday’s high of 97.820.

The dollar showed a limited response to a soft reading in new orders for key U.S.-made capital goods.

· USD/JPY trades around 109.40 ahead of Tuesday’s European session. The pair has been choppy between the 100 and 200-Hour Simple Moving Averages (HMAs) off-late.

In addition to the 109.37/45 range described by 100 and 200-HMA respectively, a downward sloping trend line since December 19, at 109.47 now, also acts as near-term key technical levels.

While a price break above 109.47 can challenge the monthly high near 109.70, a downside break below 109.37 opens the door for the pair’s drop to 109.00.

It should, however, be noted that any further movements beyond either 109.70 or below 109.00 will confront 110.00 and 108.80.

It’s also worth mentioning that the year-end holiday season and normal conditions of the 14-bar Relative Strength Index (RSI) dim the prospects of the pair’s major moves.

· Thailand’s annual manufacturing output likely fell for the seventh straight month in November, but at a slower pace than in the previous month, a Reuters poll showed on Tuesday.

The manufacturing production index likely fell 7.1% in November from a year earlier, after 8.45% contraction in October, according to the median forecast of six economists.

Industrial goods exports, which account for about 80% of Thailand’s total shipments, dropped 6.4% in November from a year earlier.

Exports have been affected by global trade tensions and the strength of Thai baht THB=TH, Asia's best performing currency this year so far.

· China, Japan and South Korea have agreed to work together to promote dialogue between the United States and North Korea, South Korean President Moon Jae-in said on Tuesday following a summit between the three countries in China.

North Korea has set a year-end deadline for the United States to change what it says is a policy of hostility amid a stalemate in efforts to make progress on their pledge to end the North’s nuclear program and establish lasting peace.

North Korean leader Kim Jong Un and U.S. President Donald Trump have met three times since June 2018, but there has been no substantive progress in dialogue while the North demanded crushing international sanctions be lifted first.

Speaking in the southwestern Chinese city of Chengdu following a meeting with Chinese Premier Li Keqiang and Japanese Prime Minister Shinzo Abe, Moon said the three countries agreed on the need for close communication.

· Analysts and economists look for both the Federal Reserve and European Central Bank to leave interest rates alone in 2020.

However, should the Fed alter monetary policy, observers say the most likely move will be another rate cut. In the case of the ECB, however, market watchers are more mixed and suggest the continent actually needs fiscal stimulus instead.

Any changes by the Fed and ECB are most likely to affect gold, compared to actions by any other major central banks. Monetary accommodation means potential for an eventual pickup in inflation, and gold is often bought as an inflation hedge. Moves by these banks also affect the euro-U.S. dollar exchange rate -- the one gold reacts to most closely.

The Fed left rates unchanged in December meeting after cutting by 25 basis points three times this year. Based on the so-called dot-plot, which shows expectations of individual policyholders, Fed members themselves now are not expecting to cut in 2020.

“We have the Fed keeping rates on hold for the foreseeable future,” said Andrew Hunter, senior U.S. economist with Capital Economics. “That’s partly because over the past couple of months, they’ve come out and said they are not planning any further rate cuts unless there is a material change in the outlook.”

Further, observers said, the U.S. economy is still growing. And, said Nomura Global Economics, the Fed would prefer not to change policy in a run-up to 2020 elections.

“Following the unusual underperformance of inflation late in the cycle, and associated declines in inflation expectations, we think the Fed will want to foster a period of ‘reflation,’” Nomura said.

Still, there are some who do envision more cuts in 2020, including TD Securities and Commerzbank.

?“I think there could be as many as two cuts before the election,” said Marc Chandler, senior market strategist with Bannockburn Global Forex.

“But by the end of Q1 or early Q2, I think the economy will be weakening,” Chandler said, adding that inflation may ease as well. “And that will allow the Federal Reserve to cut rates early in Q2.”

Nomura noted last week that interest-rate markets were pricing in “a bit less than one cut” over the next 12 months. As of Monday morning, the CME FedWatch Tool shows that the interest-rate market was factoring in a 51.5% probability that the current Federal funds target rate will still be at the current 1.5% to 1.75% as of the December 2020 Fed meeting, with a 34.6% probability of a cut to 1% to 1.25%. There was an 11.6% chance of an even greater cut and a 2.3% chance of a hike.

“We do not think the modal forecast for most market participants is cuts next year,” Nomura said. “Instead, we suspect this pricing reflects markets’ judgment that cuts are more likely than hikes. We agree with that assessment.”

· 2020: Path of least resistance is to the higher side

Dovish Fed

The US central bank signaled rate cut pause for 2020 earlier this month. As a result, some observers are worried that next year could prove to be a difficult one for gold prices.

While the central bank has officially announced an end of the easing cycle, it is unlikely to start raising rates anytime soon. In fact, the Fed is willing to allow inflation to run hot and will consider raising rates only if inflation persistently remains above its target of 2%, Chairman Powell said on Dec. 11.

· Busch commented that the ECB is in a “difficult spot.” Some analysts and economists see a need for more easing, but others said a negative deposit rate is already creating problems for banks. Several observers suggested the continent may have to rely on fiscal stimulus instead.

Chandler figures that monetary policy “has done all that it can do,” thus leaving the burden on fiscal policy.

“From a monetary standpoint, I don’t know how much further they can go into negative territory without severely disrupting their financial system,” Busch said.

A recovery in China’s economy may help the portion of the European economy that relies on exports, Busch said. However, the U.K.’s eventual move out of the European Union will have an impact, crimping the EU’s ability to spend money to spur growth.

Thus, new ECB President Christine Lagarde “will spend most of her time begging EU governments to stimulate” through increased fiscal spending, Busch added. She will also have to push for a more unified financial system in which officials could issue debt for the EU as a whole, Busch continued.

· High office rentals in Taiwan look like they’re here to stay.

The office space market in the self-ruled island is already overcrowded, in part thanks to reshoring — or the practice of bringing production and manufacturing for homegrown companies back to the country of origin.

Now, with the uncertainty from the trade war between the U.S. and China still lingering after more than a year, rents for offices in the densely populated capital of Taipei could continue to climb as Taiwanese firms consider returning home.

· The IMF and other forecasters expect 2020 to be better than in 2019. Markets are also expecting growth to rebound in 2020.

Not to forget, hard Brexit is still on the table and could rock the equity markets, sending gold higher. All in all, the odds appear stacked in favor of gold bulls. Dips, if any, due to trade optimism will likely be short-lived.

· It’s fair to say that oil price predictions among banks and energy consultancies for the next year are a little scattered.

Forecasters see the price of international oil benchmark Brent crude at anywhere between $59 to $70 per barrel for 2020, based on varying projections for supply, global demand and whether OPEC’s latest production cut deal will see full compliance from member states.

Most of the forecasters CNBC spoke to tended toward bearish, however, seeing the price of Brent struggle to go much higher than its November average of $63 per barrel.

The U.S. Energy Information Administration (EIA) “forecasts Brent spot prices will average $61/b in 2020, down from a 2019 average of $64/b,” it said in a December release, putting U.S. benchmark West Texas Intermediate (WTI) prices on average $5.50 per barrel lower than Brent.

The Institute of International Finance (IIF) in Washington, D.C., doesn’t see any hope for oil prices at the start of the next decade, and believes that the extra half a million barrel cut from OPEC+ “may not be enough to rein in projected oversupply in 2020, since the OPEC+ bloc has already made cuts well beyond the 1.2 mbd target of the previous agreement.”

Still others see reason to lean bullish, with the likes of BofA Global Research and J.P. Morgan calling prices above the 2019 average.

BofA admits that “target levels announced (in December by OPEC+) may be harder to meet,” and that the group’s output cut agreement shrinks production quotas for several member countries that weren’t delivering on previous quotas already, “casting doubt over compliance levels in 2020.”

But if strong compliance does come out of the agreement, that compliance, “coupled with other positive economic developments, such as a pick-up in global inventory restocking and a small U.S.-China trade deal, could push Brent to our $70 price target ahead of schedule,” BofA wrote in December.

J.P. Morgan, meanwhile, updated its Brent forecast to $64.50 per barrel for 2020, up from earlier forecasts of $59 per barrel, and it expects prices to fall to $61.50 in 2021.

Saudi Arabia will be watching those OPEC+ compliance levels and market conditions ahead of a March 2020 meeting at which time further steps may be taken. But even the highest forecast for Brent in the low $70s won’t be enough to balance the OPEC kingpin’s budget, whose budget deficit is set to increase to 7% next year. Saudi Arabia needs oil at $77 to $78 per barrel to balance its budget, analysts say.

· Oil prices rose on Tuesday in thin pre-Christmas trading after Russia’s energy minister said cooperation with OPEC to support the market would continue and as analysts forecast a second weekly decline in U.S. crude inventories.

Brent crude LCOc1 was up 12 cents, or 0.2%, at $66.51 a barrel by 0702 GMT. U.S. West Texas Intermediate CLc1 was 7 cents higher at $60.59 a barrel.