CNH: Fixing Bias Tempers Yuan Appreciation Trend In Near Term, PMIs Out Sunday

• RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
• RES 2: 96.780 - High Jun 26 (cont)
• RES 1: 96.700 - High Sep 12  
• PRICE: 96.530 @ 15:45 GMT Oct 28
• SUP 1: 96.280 - Low May 15 (cont.)  
• SUP 2: 95.900 - Low Jan 14 (cont.)
• SUP 3: 95.760 - Low 14 Nov ‘24

Aussie 3-yr futures briefly bounced on the US CPI print keeping focus higher despite the break of support last week. Short-term resistance at 96.615, the Sep 12 high, has been broken, with 96.780 is the next upside target. Clearance of this level puts markets at fresh multi-month highs. 96.280 marks next major support - but markets are some way off this mark now.

Oil continued normalising on Tuesday following the 24 October high driven by news of increased US/EU sanctions on Russia. The fall in the Dallas Fed services index pressured prices. The market is refocusing on supply/demand fundamentals with OPEC’s monthly meeting on Sunday and another output increase probable while the IEA revised the expected 2026 market surplus higher in its October report. This is likely to provide a headwind to oil prices for some time.

• WTI fell 1.8% to $60.18/bbl after breaching $60 a number of times but breaks below were brief. It reached a low of $59.76, just above support at $59.64, 23 October low. It is now 2.9% lower in October and almost 4% off Friday’s high.
• Brent was down 1.8% to $64.47/bbl to be 2.4% lower this month. It touched $64.00 after the Dallas Fed data and then settled around $64.50. It held above initial support at $63.86, while the bear trigger is at $60.07. The expiry of contracts around $65 could add to market volatility, according to Bloomberg.
• OPEC increased its output target 137kbd at the last 2 meetings and another one is likely at the 2 November meeting as the group continues to unwind its previous 1.66mbd reduction.
• According to data from Vortexa there are currently 1.4bn barrels of seaborne oil, which the market is concerned will add to inventories. This is the highest since 2016 (Bloomberg).
• Bloomberg reported that US oil inventories fell a larger than expected 4mn barrels last week, after declining the previous week, according to people familiar with the API data, which may support crude when it resumes trading. Gasoline and distillate were both lower down 6.3mn and 4.4mn respectively. The official EIA data is out on Wednesday.

Aussie bond futures are tracking with a modestly softer bias in early trade, as markets await the Q3 CPI (and monthly CPI print) later. RBA easing expectations for Nov have been pared, now around 9bps priced in (roughly 36% chance of a cut). We did have 16bps priced in at the end of last week. Given recent market shifts we could see greater reaction today to a dovish CPI outcome rather than a hawkish one. 

•  The Q3 trimmed mean is expected to rise 0.8% q/q leaving annual inflation stable at 2.7% y/y. A 2.5%y/y print is likely needed to re-ignite Nov easing prospects. A 2.6%y/y print could deliver an easing in Nov (if services inflation is supportive) as this was the Q4 RBA forecast made in Aug. A 2.8%y/y for trimmed mean or higher may reduce Nov easing chances back to flat.
• 3yr futures (YM) were last 96.525, (off 1.5bps), slightly underperforming the 10yr (XM) (last near 95.8050). Levels wise we are still some distance from important support for the 3yr (96.28, May 15 low), through late Sep/early Oct, dips under 96.40 were supported. On the upside, recent highs were marked at 96.70.
• Cash ACGB yields are up a little over 1bps across the benchmarks, the 3yr up to 3.46%, as it re-establishes a likely 3.40-3.60% range. The 10yr around 4.18%.
• The 3/10s curve is holding just under 72bps, while the AU-US 10yr spread is pushing up towards +21bps, eyeing another +30bps test.