AUSSIE BONDS: Slightly Richer With US Tsys, HH Spending data In Focus

• 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: 96.345 @ 16:07 GMT Nov 3
• SUP 1: 96.280 - Low May 15 (cont.)  
• SUP 2: 95.900 - Low Jan 14 (cont.)
• SUP 3: 95.760 - Low 14 Nov ‘24

Having bounced well on the back of the mild US CPI print, Aussie 3-yr futures reversed course Wednesday on strong domestic inflation data containing RBA cut pricing through 2026. This keeps prices well below prior resistance at 96.615, the Sep 12 high, and refocuses attention on 96.280 as the next major support. 

ACGBs (YM x-1.5 & XM -1.5) are weaker after cash US tsys finish moderately weaker.

• Today is RBA Policy Decision day, with the Board likely to remain highly data-dependent and cautious given inflation's renewed shift higher and the emerging domestic recovery, but easing labour market conditions. (see MNI RBA Preview here)
• Paul Bloxham (HSBC) argues that Australia’s labour market still appears tight, as inflation is rising even with unemployment at 4.3%. He questions whether the RBA may have already eased policy too much. Consequently, he does not expect further rate cuts and believes the next move in interest rates is more likely to be an increase. – AFR via BBG
• These thoughts appear consistent with the attached chart, which highlights that rising annual inflation tends to end easing cycles.
• Cash ACGBs are 1bp cheaper.
• The bills strip is flat to -2 across contracts.
• RBA-dated OIS pricing implies almost no chance of an easing, with just a 3% probability assigned. As it currently stands, the OIS market has only an 80% chance of a 25bp cut by mid-2026.
• The AOFM plans to sell A$1200mn of the 4.25% 21 March 2036 bond on Wednesday and A$800mn of the 3.00% 21 November 2033 bond on Friday.

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After an initial dip, gold looked through China’s decision to remove the retail tax exemption on gold and trended gradually higher before settling around $4010. It reached $4030.48/oz following disappointing US manufacturing ISM data. It printed at 48.7 in October down from 49.1 and below consensus. Bullion finished flat at $4001.42 as the US dollar was slightly stronger and yields higher.

• Fed Governor Cook said that she supported the October cut as she believed the risks to the labour market outweighed inflation. She also said the Fed is “not on a predetermined path … every meeting, including December’s, is a live meeting”.
• SF Fed President Daly also noted that the FOMC should “keep an open mind” about easing next month and that 50bp of cumulative easing would leave the Fed “better positioned”. Monetary easing is supportive of non-interest bearing gold.
• Gold fell to $3962.59 early in Monday’s trading, holding above initial support at $3886.6, 28 October low. At the other end, it was unable to return to $4046.2, 31 October high. Technicals suggest it remains in a corrective phase which has allowed an overbought condition to unwind. A break of the 50-day EMA at $3859.1 would strengthen a short-term bear theme.
• Silver continued its correction on Monday falling 1.3% to $48.078, close to the intraday low of $48.024. It reached $49.107 early in the European session. The trend in the metal remains bullish and declines considered corrective. A break of the 50-day EMA at $45.963 would signal scope for a deeper retracement.