AUSSIE BONDS: Cheaper, AU-US 10Y Diff Keeps Pushing Wider

Gold has rallied during today’s APAC session ahead of the Fed decision later. While a 25bp rate cut is widely expected, monetary easing is positive for non-interest bearing bullion. It will be watching the tone of Chair Powell’s comments and is likely to strengthen if they come across as dovish but he’s unlikely to give much away. The market has almost another 25bp priced in for the December decision.

• Gold is up 0.3% to $3964.5/oz today following a high of $3982.33, remaining below $4000, despite a 0.1% rise in the USD BBDXY and stable US yields. Initial resistance is at $4161.4, 22 October high. With the metal remaining in overbought territory, it could correct further.
• Silver is also higher up 0.8% to $47.45 after reaching $47.610, but still below initial resistance at $49.456, 23 October high.
• Presidents Trump and Xi meet Thursday and at this stage are expected to sign a trade deal.
• Equities are mixed with the S&P e-mini up 0.2%, CSI 300 +0.5% but the Straits Times down 0.3%. Oil prices are slightly lower with WTI -0.1% to $60.10/bbl. Copper is down 0.1%.
• The Fed and BoC decisions are later Wednesday and both are expected to cut rates 25bp. US September inventories and pending home sales as well as Q3 Spanish GDP and UK September lending print. 

• The BoJ is widely expected to hold rates steady at tomorrow's policy meeting outcome, which is also our bias.
• Market pricing is close to flat for the meeting outcome. A full 25bps hike is not priced by the market until around the March 2026 meeting.
• Focus is likely to rest on hiking risks before year end/early 2026. Whether we see additions to the two dissents from the September policy meeting (who were in favour of a 25bps hike) will be a key focus point, while broader board confidence in achieving the inflation outlook will also be eyed. 

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The AUD OIS market has almost no chance of a cut priced in for the 4 November RBA decision with only around 25% of 25bp for the 9 December decision following the broadly higher-than-expected Q3 CPI data. The October Bloomberg survey showed that economists were not unanimous as to when they expected the next cut. Of the big four local banks, only Westpac forecasted a November easing but that has now changed.

• Given that inflation is higher than the RBA expected and the “emerging consumer recovery”, Westpac now expects rates to be unchanged over the rest of 2025. It is re-evaluating the 2026 outlook but sees the February meeting also in doubt given how much higher inflation is.
• It points out though that the labour market may surprise to the downside next year. The Q3 unemployment rate was higher than the RBA expected and employment growth slower.
• Westpac consumption data are suggesting “solid gains in Q3 and into Q4” and so it now expects the RBA to revise up its consumption profile.
• In August the RBA forecast Q4 trimmed mean inflation at 2.6% and now a 0.2% q/q rise is needed to achieve that which hasn’t happened since 2016 outside of Covid. Thus there is likely to be a near-term upward revision to its inflation forecasts at a minimum. However, it uses market rates in its model and they are higher which may allow inflation further out to return to the 2.5% band mid-point.
• RBA Governor Bullock said this week the Board remains cautious and more information is needed on inflation and the labour market given the volatility of the monthly numbers. She also described a 0.9% q/q Q3 CPI rise as a “material miss”.