THB: USD/THB Eyeing Test To Multi Year Lows, BoT Seen Cutting Next Week
USD/THB tracks in the 31.65/70 region in latest dealings, up from earlier lows of 31.62. Baht is still 0.30% stronger for the session, with the market eyeing whether we can test sub 31.60, which marked lows earlier this year. Broader USD softness, along with positive seasonality into year end are aiding the THB. A clean break under 31.60 would bring 31.50, then 31.00 levels into play. These levels were last seen 2021. We might expect a pick up in actual or verbal intervention efforts ahead of any break, as the authorities worry the stronger baht will weigh on economic activity.
- Thailand is set to hold an election in the next 45-60 days, as PM Anutin dissolved the parliament, which was also endorsed by the King. Via BBG: "The move to disband parliament came after speculation that the People’s Party, which had extended conditional support to Anutin’s government, would file a motion of no-confidence against him after its bid to ensure greater say for elected lawmakers in a planned constitution overhaul was thwarted. "
- The Thai PM will also speak with US President Trump at 9:20pm local time this evening, amid the on-going border clashes between Thailand and Cambodia.
- An election is unlikely to improve the near term economic outlook. The market consensus sees slower GDP growth for 2026 (1.8%), compared to a projected 2.1% for 2025. Next week we have the BoT meeting, with a 25bps cut projected by the consensus.
- Still, given projections of on-going current account surpluses into 2026, this backdrop may not hurt THB in the near term.
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RBA: Hauser Says RBA Debating Current Policy Stance - Per RTRS
Headlines have crossed from an Rtrs interview with RBA Deputy Governor Hauser. Rtrs notes: "A top Australian central banker said on Wednesday that there was increasing debate about whether the current cash rate of 3.6% is restrictive enough to keep inflation in check, adding that the question is critical for the policy outlook."
- This reinforces the current on hold stance from the central bank, but also raises the prospect that we may have seen an end of the easing cycle. Hauser also played down yesterday's bounce in the Westpac Consumer Sentiment Index, with the RBA maintaining a case for gradual/modest recovery in consumption.
- This echoes earlier remarks this week from Hauser, as we noted - Deputy Governor Hauser answered questions at the UBS Australasia Conference and noted that given capacity pressures and policy stance are difficult to measure, the outlook is unclear and the Board is monitoring the incoming data closely. The main takeaway was that the economy could already be close to trend growth and therefore supply constraints making further rate cuts difficult. If growth rises further without strengthening the supply side, then the pickup in inflation seen in Q3 may be persistent.
- Note we also updated our RBA policy model yesterday: When updated for Q3 CPI, Q2 GDP and the RBA’s November projections, our simple policy reaction function based on the core inflation and output gaps is signalling no further easing. As trimmed mean inflation doesn’t return to the 2.5% band mid-point by the end of 2027 on current assumptions, there is a risk of monetary tightening.
JGBS: Strong Pro-Cyclical Link Has Developed Between 5Y & 2/5 YC
Ahead of tomorrow’s 5-year supply, the 2s/5s curve has steepened to near its cycle high of 32bps, last reached in late 2023.
- Regression analysis shows a strong pro-cyclical relationship between the 5-year yield and the 2s/5s curve over the past 12 months (see chart).
- This dynamic is supported by expectations that the 5-year sector will sit in the “sweet spot” for increased issuance, as Prime Minister Sanae Takaichi looks to deploy her first stimulus package to jump-start the economy.
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CHINA: Bond Futures Up on Third Day of Liquidity Injections
- The PBOC injected liquidity during the OMO this morning, taking injections to over CNY450bn for the last 3-days.
- Bond futures are up in morning trade, with the 10-Yr out performing.
- The 10-yr is up +0.04 to 108.53, and remains above all major moving averages.
- The 2-Yr is up +0.01 at 102.46 and is at the mid-point of the 200-day EMA of 102.47 and the 20-day EMA of 102.45.
- The 10-Yr CGB is flat today on where it closed yesterday at at 1.80%
