Key Takeaways
- US equities fell due to weak tech earnings, leading to a flight to quality into US Treasuries.
- The ECB held rates steady at 2.5%, with expectations for a potential hike in December.
- The BoJ is expected to maintain its rate at 1.25% today, focusing on the yen’s exchange rate and inflation risks.
- The RBA is likely to raise rates in November, while NZ business confidence improved despite mixed inflation signals.
- The Aussie dollar faces resistance around 0.7050, entering overbought territory on RSI.
Tech rout fuels haven bid as yen eyes BoJ
US Treasuries bull-steepened overnight as a tech-led equity sell-off drove a flight to quality, with 2-year yields around 10bp lower and 10-year yields down 8bp.
US Q3 GDP grew 3.4% annualised, above consensus, as consumer spending rose 3.8%. Solid data could not offset weak tech earnings. The Nasdaq fell 1.4%, the S&P 500 0.3% and the Dow 0.25%. Alphabet slid 13%, wiping out nearly $500b in market value, while Intel plunged 15% after hours on a soft revenue outlook. Microsoft’s $25b bond deal, its first since 2017, added to the duration bid.
The ECB held at 2.5% as expected, flagging higher energy prices and tighter financial conditions. President Lagarde said the Council debated a hike before opting to wait, and we continue to expect one more hike in December. Bunds closed 3.3bp richer and gilts 3bp richer, as the UK Chancellor defended a budget projected to raise £6.6b in extra revenue by 2030-31.
Australian bonds steepened 1.5bp in sympathy and SPI futures added 36bp.
Asian equities were mixed. The Nikkei rose 1.1% while the Kospi fell 1.2%, with Samsung down 4.1% despite record earnings. Shenzhen dropped 2.8%, ChiNext sank nearly 4.5% and the Hang Seng lost 0.6%. BYD missed estimates, while Volkswagen’s China joint ventures posted a €113m nine-month operating loss.
The BoJ decides today. We expect a hold at 1.25%, with focus on the Governor’s view of the exchange rate, upside inflation risk from yen weakness and the neutral rate. A firmer warning on the currency would cap USD/JPY upside.
In FX, AUD/USD was down 0.3%, while NZD/USD was up 0.14%.
In Asia, USD/SGD was down 0.14% and USD/CNH was little changed.
Aussie dollar eyes another rate move
We expect the RBA to raise rates in November after stronger Q3 inflation data. Risks still lean toward further tightening, with two additional rate increases, taking the cash rate to 5.1%, appearing more likely than rates remaining at 4.6%. If policymakers decide to tighten again after November, February 2027 looks a more likely window than December, following the next set of economic forecasts. Attention will shift to the November meeting, particularly the voting split among board members and whether officials highlight upcoming releases such as Q3 GDP and October inflation as factors that could support another move.
Immediate support for AUD/USD sits at the 21-day EMA of 0.7014, while resistance is seen at 0.7050.
AUD/CNH pair has eased. Support is located at the key 4.6750 level, while resistance stands at the 50-day EMA of 4.7124.
Firms stay upbeat as pricing pressure heats up
New Zealand business confidence improved slightly in October, with more firms reporting stronger activity than a year ago and all sectors remaining in positive territory. While expectations for their own business activity eased marginally and investment plans softened, overall sentiment remained resilient. Inflation signals were mixed. Cost expectations stayed elevated, but more firms planned to raise prices, pushing pricing intentions to their highest level since May. Higher oil prices remain a challenge, yet the sharp loss of confidence seen in the second quarter has not reappeared. Some businesses continue to see stronger-than-expected demand, while others acknowledge the risks of delaying investment decisions for too long.
NZD/USD faces resistance at the 21-day EMA (0.5660), followed by the 100-day EMA (0.5705). Support is located at 0.5600.
Aussie enters overbought territory on RSI
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 26 – 31 October
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
