Key Takeaways
- Financial markets are anxious as polls close for the US midterm elections, with key results expected by 1.00pm AEDT.
- Polling suggests a strong possibility of a Democratic House and Senate, impacting market sentiment.
- The Reserve Bank of Australia’s recent cash rate hike signals potential pauses ahead, impacting the AUD.
- Oil prices remain under pressure amid renewed supply fears after US strikes in the Middle East.
- AUD/USD fell sharply post-RBA announcement, while USD/CNH rose on concerns linked to oil supply.
All eyes on US midterms
Financial markets were on edge this morning as US midterm election voting concludes, with the first polls due to close in Indiana and Kentucky at 10.00am AEDT.
Key polls close in Georgia, Virginia, South Carolina and most of Florida at 11.00am AEDT. These results should begin to provide a clearer picture, with the outcome potentially clear by around 1.00pm AEDT, unless the vote is especially tight.
The vote is seen as a referendum on the first two years of US President Donald Trump’s second term, with the war with Iran and rising inflation two major concerns that might impact support for President Trump.
Polling by Rutgers University, quoted by Bloomberg, puts the probability of a Democratic House at more than 90% and the probability of a Democratic Senate at around 70%.
Overnight, US shares steadied on Tuesday after a broader sell-off last week and on Monday, with technology stocks particularly hard hit.
The US dollar was mostly higher ahead of the results. APAC currencies were hit hardest, with NZD/USD down 0.6%, AUD/USD down 0.5% and USD/JPY up 0.5%.
RBA hikes but signals it may be done
The Reserve Bank of Australia raised the cash rate by 25 basis points to 4.85% at its November meeting, as markets expected.
The message around the move was softer than the hike itself. Three of the nine board members voted against the hike, and the board removed its previous reference to raising rates further if needed.
RBA Governor Michelle Bullock said inflation will only come down if growth slows and unemployment rises. She stopped short of signalling another hike and appeared comfortable holding rates steady for now while this year’s increases take effect.
The RBA has raised rates five times this year. Bullock noted that the latest two increases have yet to fully reach the economy and that a rate change can take up to 12 months to have its full effect.
AUD/USD fell sharply after the announcement, losing 0.5%. Initial resistance is located at the 21-day EMA of 0.7009, followed by the 50-day EMA at 0.7029.
On the downside, 0.6900 remains the next key psychological support level.
Oil bounces as strike reports revive supply fears
Oil prices remained lower after this week’s sharp falls despite reports of a US strike on Iran’s Qeshm Island that renewed fears about Middle East supply and potential disruption to shipping through the Strait of Hormuz.
US officials described the recent limited strikes as defensive measures to protect commercial ships rather than a return to full-scale fighting. Separately, Iranian President Masoud Pezeshkian said the supreme leader had given his government more room to pursue peace talks.
Talks remain possible, but repeated strikes and shipping restrictions leave oil vulnerable to further supply disruptions and escalation.
China is one of the world’s largest oil buyers, so higher oil prices and renewed demand for safe havens tend to favour the US dollar over the yuan.
USD/CNH rose overnight and is now 0.4% above its 2 November low of 6.6426. A break above the 50-day EMA at 6.6972 would bring the 100-day EMA at 6.7303 into focus as the next resistance level.
Aussie tumbles as RBA looks to pause
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 2- 7 November
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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.
