BCB: On Hold As Expected, Contractionary Policy Needed For Long Period
The BCB kept interest rates on hold as expected at 15%. The central bank noted the significant uncertainties surrounding the outlook, including the upside and downside risks for the inflation backdrop, along with trade/tariff uncertainties. See the full statement here:
- It noted: "The current scenario continues to be marked by deanchored inflation expectations, high inflation projections, resilience on economic activity and labor market pressures. Ensuring the convergence of inflation to the target in an environment with deanchored expectations requires a significantly contractionary monetary policy for a very prolonged period."
- And "The current scenario, marked by heightened uncertainty, requires a cautious stance in monetary policy. The Committee evaluates that maintaining the interest rate at its current level for a very prolonged period will be enough to ensure the convergence of inflation to the target. The Committee emphasizes it will remain vigilant, that future monetary policy steps can be adjusted and that it will not hesitate to resume the rate hiking cycle if appropriate."
- This may temper easing expectations, albeit at the margin for Q1 next year. As our policy team noted in their preview: "All eyes are now on when the BCB might begin easing and whether it will keep the hawkish tone, with most expecting a cut in the first quarter of 2026, some in January, others in March."
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AUSSIE 3-YEAR TECHS: (Z5) Southbound
- RES 3: 97.796 - 1.618 proj of the Sep 3 - 12 - 15 price swing
- RES 2: 96.685 - 1.000 proj of the Sep 3 - 12 - 15 price swing
- RES 1: 96.615 - High Sep 12
- PRICE: 96.395 @ 16:23 BST Oct 06
- 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 have traded lower and the contract has cleared the Sep 3 low of 96.435. A break of this level negates the recent short-term bullish theme. This breach signals scope for an extension towards 96.280, the May 15 low on the continuation chart. The short-term resistance to watch is 96.615, the Sep 12 high. Clearance of this level is required to reinstate a bullish theme.
AUD: AUD/USD - Drifts Higher With Risk & AUD/JPY
The AUD/USD had a range overnight of 0.6590-0.6620, Asia is trading around 0.6615. US stocks continue to shrug off global politics and the US shutdown, the USD though got a boost from the reaction in USD/JPY. The AUD drifted higher, helped by the way risk continues to push higher and probably some AUD/JPY demand as the JPY crosses surged. A move back through the 0.6625/50 area is needed to gain the momentum to have another look toward the pivotal 0.6700 area.
- Bloomberg - “Australian Rare Earths Stocks Climb on Trump Talks With Firms. A report claimed that US President Donald Trump’s administration was mulling a stake in Critical Minerals Corp., which hopes to develop a project in Greenland. It follows news last week that the Trump government was actively looking at ways to take equity stakes in Australian companies.”
- “Australia, New Zealand to Boost Efforts to Integrate Economies. Australia and New Zealand will fast-track work on a more ambitious Single Economic Market, the program that aims to integrate their economies and reduce barriers for business.” - BBG
- Options : Closest significant option expiries for NY cut, based on DTCC data: 0.6735(AUD350m). Upcoming Close Strikes : 0.6300(AUD899m Oct 8 )- BBG
- Data/Event: Westpac Consumer Conf SA, ANZ-Indeed Job Advertisements MoM
Fig 1: AUD/USD spot 2H Chart
Source: MNI - Market News/Bloomberg Finance L.P
RBNZ: RBNZ To Have New Financial Policy Committee To Ensure Stability
The RBNZ will have a new Financial Policy Committee (FPC) to be in place in early 2026. Its remit will include macro-prudential decisions (Debt-to-income, LTV ratio levels), financial institution’s prudential requirements and decisions related to financial stability.
- The goal of the new committee is to ensure the stability of NZ’s financial system through stronger decision making by engaging experts in the field.
- The RBNZ Board Chair and Governor will sit on the FPC with another 3 RBNZ Board members and up to 2 non-Board members or RBNZ employees.
- The decision to introduce the FPC was made with the Treasury and Minister of Finance following recommendations from the Finance and Expenditure Committee’s Inquiry into Banking Competition.
