KRW: Won Can't Rally With Hawkish BoK, Wedge With Yield Differentials Widens

The USD is continuing to moderate, the BBDXY off a little over 0.10% to be 1210/11 in the first part of Tuesday trade. Recent lows were back around 1205. Underperformers from Monday, JPY and CHF, are seeing some catch up, particularly on the yen side. A reminder from the Japan authorities around FX moves has likely helped USD/JPY lower, while a visit from key US officials (including President Trump) has also potentially encouraging some paring of longs in the pair. Still, the 50-day EMA is sub 150.00 (versus current levels of 152.40/45, off 0.30% so far today), so there is still some gap to important support points. USD/CHF was last near 0.7940/45, down around 0.15%. 

• Earlier we saw: "JAPAN ECONOMY MINISTER KIUCHI: IT'S IMPORTANT TO AVOID RAPID, SHORT-TERM FLUCTUATIONS IN FX MOVES" (via RTRS), which reminded the market intervention risks are still apparent.
• Takaichi/Trump meeting headlines have been fairly high level, with the two leaders signing a joint framework on critical minerals.
• AUD and NZD are drifting a little higher, more so NZD/USD, last near 0.5780. The pair is looking to build a base above its 20-day EMA (near 0.5770) and test through 0.5800. Data outcomes today suggest gradual improvement in the labour market, with NZ yields edging higher.
• AUD/USD was last around 0.6560/65, lagging yen and NZD but still above all key EMAs. Earlier Oct highs were close to 0.6630.
• USD/CNH has tested under 7.1000, but has been unable to sustain the break so far.
• Cross asset trends are muted from a US equity futures standpoint, with steady trends so far today. US Tsy yields are mixed, with some modest gains at the front end. 

The RBA August projections had another 25bp of easing in Q4 based on market pricing. This still allowed underlying inflation to settle close to the 2.5% band mid-point over 2026. Wednesday’s Q3 CPI data will be important for how it impacts the RBA’s inflation outlook which will be key for the 4 November decision. A pause at the November meeting is likely to leave the December meeting live though. Market pricing reflects a good degree of uncertainty around November.

• The AUD OIS is currently not sure with 10bp priced in for November and 17bp by year end but this could move sharply with Q3 CPI.
• Key watch points for CPI tomorrow are as follows: Bloomberg consensus expects trimmed mean to print at 0.8% q/q & 2.7% y/y, which would see a pickup in the 2q/2q annualised rate to 2.8% from 2.6%. This outcome could argue for a hold or a cut dependent on the revised outlook and services inflation result.
• Contained services, core around 2.6-2.7% y/y or below would likely drive further easing, but even 2.8% could see another hold in November as the Board waits for more data, especially given it sees “signs that private demand is recovering”.
• Bullock said the Board was concerned about the rise in some of monthly CPI components, especially services. She noted that it has been sticky overseas and so the change in Q3 market services prices will be monitored. It moderated to 2.9% y/y in Q2 from 3.3%.
• This week Bullock reiterated that labour data are volatile and while the 0.2pp rise in the September unemployment rate to 4.5% was surprising, it could fall again in October. Thus she would like more information. The Board also looks at the 3-month averages and the Q3 unemployment rate only rose 0.1pp to 4.3% while underemployment fell 0.2pp to 5.8%.
• There are a lot of key data before the December meeting which could drive a November pause to wait and see, including surveys but also October jobs on 13 November, Q3 wages 19 November, October CPI 26 November (first full sample monthly CPI) and Q3 GDP 3 December.