INR: USD/INR Teases 90 on NDF Market, RBI Intervention Described as Sporadic
USD/INR rose to a new record high, prompting intervention from the RBI to prevent a further slide in the local currency. However, reports suggest that intervention from the central bank was sporadic, and the price action continues to suggest that authorities are loosening their grip on the currency. Spot rose to a high of 89.78, narrowing the gap to the psychological 90.00 handle, and last deals at around 89.55, up 0.1% on the session. Rupee weakness was more notable in the NDF market – the pair fell just 2 pips shy of 90 and remains 0.25% in the green at typing.
- The lack of a US-India trade deal and a widening trade deficit remain key rupee headwinds, despite local press continuing to suggest that a trade deal is inching to completion, while portfolio outflows have been cited as a source of weakness on an intraday basis. INR weakness today comes despite the significantly stronger-than-expected GDP print for Q3 - GDP rose 8.2% y/y in Q3 from +7.8% in Q2, beating estimates of a slowdown to +7.4%.
- Recent INR price action is notable as it comes just ahead of the RBI rate decision on Friday. The Bank is expected to cut rates despite the pressure on the currency, with the low levels of inflation still a more significant concern for policymakers – CPI inflation for October hit +0.25% Y/Y, the lowest on record. In an interview earlier this month, Governor Malhotra indicated that recent economic data supports a potential rate reduction.
- Malhotra also said a 3–3.5% annual drop is typical for the rupee and that the RBI’s focus remains on containing excessive volatility, but analysts will use this month's meeting to gauge the central bank's tolerance for further weakness as USD/INR nears the key 90 level.
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AUSSIE 10-YEAR TECHS: (Z5) Returns Lower
- RES 3: 95.982 - 76.4% retracement Sep’24 - Nov’24 downleg
- RES 2: 95.960 - High Apr 7 (cont.)
- RES 1: 95.900 - High Oct 17
- PRICE: 95.670 @ 16:16 GMT Oct 31
- SUP 1: 95.510 - Low Sep 3
- SUP 2: 95.415/95.300 - Low May 15 / Low Jan 14
- SUP 3: 95.275 - Low Nov 14 (cont) and a key support
Aussie 10-yr futures slipped lower Wednesday on the back of hotter-than-expected Australian inflation. This returned prices lower despite nascent signs of a technical recovery as recently as last week. The sustainability of the pullback will be dependent on prices holding above key short-term support at 95.510, the Sep 3 low. Near-term resistance remains 95.780, the Sep 12 high. A clear break of this level signals scope for a continuation higher and opens 95.960, the 76.4% retracement level for the Sep’24 - Nov’24 downleg.
AUSSIE 3-YEAR TECHS: (Z5) Struck by Strong CPI
- 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: 96.375 @ 16:13 GMT Oct 31
- 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.
FED: Gov Waller: Still Advocating For A December Rate Cut
Gov Waller, one of the FOMC's more prominent doves, makes clear in an appearance on Fox Business that he supports a follow-up rate cut in December. He makes reference to Chair Powell's press conference comment that the Fed could skip a cut at the December meeting due in part to a lack of official government data during the federal shutdown (Powell: “what do you do if you are driving in the fog? You slow down").
- Waller says today: "Right now, we know that the labor market has been weak... We know inflation is going to come back down. Inflation expectations are anchored, and in that world, the standard of central bank wisdom is to look through it and proceed with worrying about the labor market. So in my view, we should just look at what the data is telling us and proceed on policy that way.... So this is why I'm still advocating that we cut policy rates in December, because that's what all the data is telling me to do. The fog might tell you to slow down. It doesn't tell you to pull over to the side of the road. You still have to go. You may want to be careful, but it doesn't mean to stop, and ... the right thing to do with policy is to continue cutting."
- This is of particular interest since he appeared to suggest he would have a more cautious outlook on further easing after cutting in October.
