Global overview
The US dollar dropped further overnight as US Federal Reserve officials boosted expectations for potential rate cuts next year. Today, Australian monthly inflation and the Reserve Bank of New Zealand’s rate decision are both due.
US bond yields tumble on Fed’s Waller commentary
The US dollar was sent even lower – with the USD index at the lowest level since mid-August – as the US Federal Reserve continued to signal that the central bank is likely at the end of its rate hiking cycle.
Washington-based Federal Reserve Governor, Chris Waller – traditionally seen as a policy “hawk” – spoke overnight and joined the growing chorus of policymakers that now see US inflation as a diminishing problem.
Waller said that falling inflation, if it continued, means the Fed “could start lowering the policy rate just because inflation is lower”.
The US two-year bond yield fell from 4.89% to 4.74% overnight.
The greenback was weaker across the board. The USD/JPY led losses with the pair down 0.8%.
The USD/SGD fell 0.4% while the USD/CNH also extended losses, down 0.3%.
Kiwi supported despite RBNZ caution
The AUD/USD and NZD/USD both gained 0.5%. The Aussie’s recent strength might be tested by today’s monthly inflation reading due at 11.30am AEDT.
For the kiwi, with the Reserve Bank of New Zealand decision due, market expectations are looking for the RBNZ to once again declare an unaltered cash rate.
Activity statistics have been somewhat mixed since the RBNZ’s previous meeting on 4 October, although inflation data has surprised on the lower side. Specifically, the headline Q3 CPI inflation rate fell by 0.3 percentage points from its prediction, Q3 wage growth fell short of forecasts, and food prices have decreased.
New projections, which will be included in its quarterly report, ought to keep pointing to the likelihood that the rate tightening cycle is over. Its message about rates in October was, in our opinion, “high for long,” not “higher.” This time, however, we see a chance that its updated projections might suggest that any rate cuts might occur a bit sooner than anticipated.
Elsewhere, looking at AUD/NZD cross, the market has shifted to price in a more aggressive rate increase profile from the RBA and a less aggressive profile from the RBNZ, which has caused the AUD/NZD to rise. In the meantime, we believe that market positioning, and relative current account performance continue to favour the AUD over the NZD.
Bank of Thailand seen likely on hold
The Bank of Thailand (BOT) looks likely to unanimously decide to maintain its policy rate at 2.5%, which it considers to be neutral after eight straight raises. As at the last meeting, we believe the BOT will emphasize that, “the current policy interest rate is appropriate for supporting long-term sustainable growth” in the policy statement, which will again have a neutral tone.
The September current account surplus of USD3.4 billion, which was probably momentarily bolstered by the spike in gold exports, is predicted to contract to USD1.3 billion in October. Even so, export growth probably picked up speed in October, rising to 9.8% y-o-y from 2.1% in September, partially due to base effects and aided by a strong uptick in car exports. This suggests export increase of 0.4% m-o-m seasonally adjusted (sa) sequentially, down from 2.4%.
We anticipate a significant increase in import growth in October, from -8.3% y-o-y in September to 8.8% y-o-y, mostly due to fuel imports and higher global oil prices. Sequentially speaking, import growth most likely rose from 0.4% to 3.2% m-o-m sa. Overall, this suggests that the trade balance of products cleared via customs will change from a surplus of USD 2.1 billion in September to a deficit of USD 0.2 billion in October.
USD tumbles as it hits August lows
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 27 November – 2 December
All times AEDT
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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.
