INDIA: RBI Cuts Rate, Signals End to Easing

ACGBs (YM +5.5 & XM +3.5) are stronger but off session bests. Today’s move leaves futures 4bps stronger than yesterday’s pre-RBA levels despite RBA Governor Bullock’s hawkish tone.

• Global bonds are benefiting from a general risk-off tone across markets, although there has been a bounce off lows.
• Cash US tsys are 1-2bps richer in today’s Asia-Pac session after yesterday’s modest rally.
• Cash ACGBs are 4-5bps richer with the AU-US 10-year yield differential at +24bps. At this level, the spread remains near the upper end of the ±30bps range that has persisted since November 2022. (see chart)
• Today’s auction of the Mar-36 bond showed solid pricing for ACGBs, with the weighted average yield coming in 0.43bps below prevailing mid-yields, according to Yieldbroker. Moreover, the cover ratio nudged higher to 3.5167x from 3.4917x.
• The bills strip has bull-flattened across contracts, with pricing +1 to +6.
• RBA-dated OIS pricing is showing a 25bp rate cut in December at a 15% probability, with a cumulative 11bps of easing priced by February 2026.

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Source: Bloomberg Finance LP / MNI

The BBDXY has had a range today of 1225.29 - 1226.35 in the Asia-Pac session; it is currently trading around 1225, -0.05%. The USD continues to build on its recent gains eking out new highs every day, what stood out was with risk turning lower the USD gained some tailwinds as its status as a “safe haven” looks to have been reinstated. The 1230 area remains tough resistance, only a sustained close back above 1230 would start to challenge the conviction of the longer-term USD shorts. Risk/Reward does still favour fading this moving initially but the price action is starting to look more constructive as higher lows are being made and the dips remain very shallow pointing to a reduction in shorts. A sustained move back above 1230 would potentially signal a medium term low is in place and a deeper pullback is on the cards.

• EUR/USD -  Asian range 1.1479 - 1.1498, Asia is currently trading 1.1490. The pair has broken back below1.1500, and I suspect rallies will now be sold into with the first resistance back toward 1.1550-1.1600. The next target is the 1.1350/1.1400 support; a break below this could signal a deeper correction toward the 1.1100/1.1200 area.
• GBP/USD - Asian range 1.3010 - 1.3028, Asia is currently dealing around 1.3020. The pair broke through its support around the 1.3150 area and extended lower overnight. I continue to favor fading rallies though as GBP looks like it has put in a medium term top. First sell zone back toward 1.3150 and then the 1.3300 area.
• Cross asset : SPX -0.15%, Gold $3960, US 10-Year 4.0680%, BBDXY 1225, Crude Oil $60.45
• Data/Events : Italy New Car Registrations/HCOB Italy PMI’s/Retail Sales, France Industrial Production/Manufacturing Production/HCOB France PMI’s, Spain HCOB Spain PMI’s, Germany Factory Orders/HCOB Germany PMI’s, EZ HCOB Eurozone PMI’s/PPI

Fig 1: GBP/USD Spot Weekly Chart

Source: MNI - Market News/Bloomberg Finance L.P

The NZD/USD had a range of 0.5631 - 0.5659 in the Asia-Pac session, going into the London open trading around 0.5655, +0.20%. The NZD has actually drifted higher in our session, this after a poor NZ Unemployment print and Asian stocks collapsing. This price action potentially points to the market already being positioned short, though some decent option expiries that are close could also be playing a part. The NZD stands out as a vehicle to short against a resurgent USD but it is worth noting that because of the size of the market it can very quickly become all positioned the same way. I think the USD will need to do the heavy lifting and break above its pivotal resistance for the NZD to test the 0.5500 lows. Should this correction in risk have more room to move lower then I suspect the NZD will remain a sell on rallies with the first resistance back toward the 0.5725-0.5750 area.

• MNI BRIEF: New Zealand Unemployment 5.3% In Q3. The underutilisation rate edged up to 12.9% from 12.8%, while the employment rate eased to 66.6% from 66.8%. The Reserve Bank of New Zealand expects unemployment to reach 5.2% by December.
• “RBNZ GOVERNOR HAWKESBY: HOUSE PRICES AND CREDIT GROWTH NOT RAISING RED FLAGS, SO CAN HAVE MORE BASELINE MORTGAGE LOAN-TO-VALUE RATIO SETTINGS" - RTRS
• Options : Closest significant option expiries for NY cut, based on DTCC data: 0.5650(NZD1.1.4b Nov 5), 0.5675(NZD1.27b Nov 5), 0.5750(NZD604m Nov 5). Upcoming Close Strikes : 0.5730(NZD496m Nov 6), 0.5780(NZD305m Nov 6) - BBG
• Tomorrow, the local calendar will see the RBNZ at the Select Committee to discuss the FinStab Report, and the Government will release its 3-Month Financial Statements.

Fig 1: NZD/USD Spot Daily Chart

Source: MNI - Market News/Bloomberg Finance L.P