FX

AUD – Despite several AUD positive stories materialising last week, (a strong Q3 CPI and ramping down of US-China trade tensions), AUD/USD failed to gather sufficient momentum beyond 0.6618 as a relatively hawkish Powell dampened expectations for a Dec rate cut, BoJ Ueda's ongoing patient and cautious messaging and UK political turmoil all kept the USD bid.

Tomorrow's RBA likely sees some hawkish tweaks to the statement and CPI projections in light of last week's CPI print, encouraging a slight shift in OIS pricing in the direction of an extended pause and helping stabilise AUD further. The widespread expectation is that Oct unemployment likely unwinds some of the prior month’s sharp rise (13 Nov) as well. Q3 GDP (3 Dec), probably shows household consumption building on Q2’s rebound. That creates several touch points for an ongoing repricing in RBA expectations. Rates markets price -10bp for Feb 2026 and -23bpp for May 2026.

The combination of a rebounding USD and more cautious RBA messaging likely keeps AUD/USD pedalling in the mid-0.65s over the week. Key levels to watch on the downside include 0.6530 and 0.6512. We still think AUD/USD can land nearer long held year-end targets, closer to 0.6700. For one thing, benign profiles for US wages and housing rents, alongside slow tariff passthrough make a case for a Dec Fed cut. AUD/USD can't rely too heavily on this to fuel upside though, as Powell is sure to give off reluctant and cautious vibes around cuts in the absence of a sudden sharper downdraft in the labour market.

We stick with the view that AUD-crosses look like a safer bet right now, especially AUD/GBP and AUD/JPY. Sterling is heavily challenged ahead of difficult fiscal choices (Autumn budget is late Nov) and amid ongoing political upheaval. The Takaichi Govt has been more hands-off with the BoJ than worst case fears, but Ueda is clearly in no mood to take the reins. AUD/GBP can sustainably take out 0.5000 against this backdrop while AUD/JPY has headroom towards 102.50 before resistance levels come into play.-KB

NZD – NZD/USD has carved a 0.5700-0.5800 range over the past few weeks. Near term risks remain skewed to the downside, a break below 0.5700 likely to send a multi-week bearish signal. In NZ, markets will focus on the Q3 labour data on Wednesday. The median expectation among economists is for a rise in the unemployment rate, from 5.1% to 5.3%, which matches the RBNZ’s forecast from the August MPS. AUD/NZD has a decent chance of breaking its recent 1.13-1.14 consolidation zone given major event risk from both countries. -IS

Rates

US Rates – The bearish shift in sentiment following last week’s hawkish rate cut continued overnight with Fedspeak questioning whether a December rate cut (currently 16bp is factored-in) would be necessary. We suspect that the push higher in yields may have further to run, although the market is still concerned more about the hit to economic activity from the government shutdown and hence maintaining around three more cuts in total over the next year. So, outside of a surge in inflation that shifts the balance of risks for the Fed, there is little reason to expect a major re-calibration of UST yields near term.

Outright: We continue to believe that a 3.8-4.25% range is most likely into year end, with a test of the upper range bound likely in coming trading sessions. At the same time, we are sceptical as to whether lower yields are sustainable from a medium term perspective. To push longer yields much lower, it would need the market to price-in a greater chance of recession than is already reflected in the forward cash profile. For now we think that is unlikely and our central view is that if 3.8% is achieved it wouldn’t sustain for long under the current more moderate growth expectations. So, we remain neutral at current levels, albeit closely watching price action for the eventual trigger to establish strategic short positions.

Curve: The curve flattened as expected with the revision to Fed risks, but we continue to favour being exposed to medium term steepeners as we remain concerned about the fiscal outlook.

10yr Spread to Bund: The spread quickly widened back to the upper end of the recent range post-FOMC and is expected to consolidate around the current level (145-150bp). We do not expect a clear trend to evolve in either direction as we head into year end. –DM

AU Rates – With no chance of a rate cut at tomorrow’s RBA MPB meeting the focus is now on how the RBA interprets the upside surprise to inflation and how it influences their updated SoMP forecasts. Clearly, it will be hard for the RBA to deliver a dovish message and so the pared back policy profile, which implies slightly less than one rate cut by May next year is likely a best case scenario. Indeed, the risk is that “end of cycle” narratives begin to influence price action, which will potentially reduce the odds of a further rate cut to a 50/50 proposition.

Outright: Even so, we would not expect the chance of further cuts to be fully factored out of the six month forward profile. So we are looking to buy the dip on any further domestic-led bearish impetus. The key levels are 96.30-33 in the 3yr futures and around 95.60 in the 10s.

Curve: While the curve flattened post-CPI on the re-calibration of RBA risks, and despite our view that the RBA will pause before eventually renewing its easing cycle, we think medium term drivers still favour flattening impulses over coming weeks, as supply slows and global investor demand comes back into focus. The next key target is for the 3s10s is the 60bp level.

Swap Spreads: The widening in swap spreads has slowed, but we see it as largely directional and still correlated with the global spread moves. There is plenty of interest as the 10yr EFP remains in positive territory and the question as to whether spread can widen further, and by how much, remains a central focus. We are watching the price action closely but our central expectation is for the recent moves to slow and be offshore-led. A sustained widening would need to be supported by an extended underlying bond market rally, which we do not think is likely, at least near term.

Semi Spreads: There remains good demand for the sector with some spreads to bond reaching new narrow levels (e.g. TCV30, TCV34). Demand remains strong and there are few bearish drivers at present. Hence, we continue to expect any widening impulses to be capped, with semis still maintaining a significant yield advantage compared to global counterparts. Semis are the better “cross market” trade for now and will benefit further from any bearish rates performance.

10yr Spread to UST: The spread remains near recent wides and there is little reason to expect AU performance, especially ahead of Tuesday’s policy announcement and S0MP update. We are neutral for now but will still be biased to enter narrowers at the appropriate time. –DM

SSAs: SSAs: The end of last week saw a flurry of small taps by SSA issuers into the A$ market. IFC priced a $100m increase to their January 2030s at 37bps to swap and Export Finance Australia (EFA) came soon after with a 5-year benchmark mandate (WBC a JLM). EFA (AUSTC on bbg) is a relatively small issuer in the domestic market, with the bulk of their issuance done in USD.

The issuer currently has A$150m Nov 30, A$250m Aug 31s and A$500m Feb 33s in the 5-8 year area of the curve. ADB also added $375 to their 2035 health bond overnight at a spread of 55bps/swap. ADB first issued this bond in January this year last tapped it in mid-August at a spread of 65bp/swap. On an RV basis, the spread between the ADB 01/35s and NSWTC 02/35s have widened (less negative) and is sitting at currently close to flat levels. Recent SSA issuance and performance in the Semi sector has seen 5yr and 10yr benchmark SSA-Semi spreads sitting at attractive levels, perhaps adding to recent demand seen in syndicated taps. - UC

NZ Rates - The NZ 2yr swap rate last week remained above its mid-October (and possible cycle) low of 2.44%, mostly following minor movements in US and AU interest rates. The main influences on swap rates this week will probably be the NZ labour data and the RBA decision.

The OIS market remains happy to price a 25bp cut to 2.25% at the next RBNZ meeting on 26 November, assigning an almost 100% chance, and a 0% chance to a larger 50bp cut (it surprised with a 50bp cut in October). Regarding the remainder of this easing cycle, it assigns around a 50% chance to a final 25bp cut by May 2026, suggesting little conviction in whether the OCR bottoms at 2.25% or 2.0%.

The NZ yield curve continues to show tentative signs of peaking, the 2-10yr swap curve currently at 110bp (vs the recent peak at 111bp), with minor movements last week driven by offshore bond yields. The yield curve will start to flatten more convincingly when the OCR cycle low is eventually confirmed.

NZGB swap spreads have risen during the past two weeks, responding to the attractive carry and roll provided by a steep yield curve. The 2035’s has risen to -43bp, from a range low of -53bp, and we remain bullish on the spread medium term.

Near term, NZGB market thoughts will be on the 2036 syndicated tap. Our guess on timing is that the second and third weeks of November look relatively event risk free. We expect the deal size to be around $5bn-$6bn, given the two remaining syndications need to issue $10bn.

The NZ-AU 1y1y swap spread is currently retesting a 13-year low, at -83bp, following last week’s strong AU CPI data. The RBA decision and statement this week, as well as the NZ labour data, will determine whether the low holds. We have a pay NZ receive AU trade on our watchlist, with an expectation that economic green shoots in NZ in 2026 should result in significant gains in NZ-AU spreads. -IS

Funding, basis, and liability management.

Over the last week, the financial landscape in Australia has changed a lot. The CPI print, so critical as the final puzzle piece for the RBA ahead of November, removes the chance of a cut this week, even with the higher unemployment rate. Something more moderate on inflation would have sufficed to get that cut, but we are not there. With the November meeting, our economics team has removed the chance of a cut. For the RBA, Nov means a new SOMP and forecasts, and lifting both unemployment and CPI as starting points in forecasts means that for the next SOMP in February, a reversal, if data fell that way, would stretch credibility. So, this means realistically, May becomes the more important timing. On Friday, the economics team revised their rate cut calls to look for the first move in May. They note that should rates stay higher for longer, the RBA will have work to do.

For liability managers, yields have been stretched lower as it is driven by global factors, but the Australian market has removed a lot of rate cuts. OIS has the roughly 1 cut priced in, which is in line with the view published on Wednesday morning ahead of the data release. The dis-inversion of the short dated rate curve will mean shifting from floating rates to fixed has become challenging, a reason we pushed this very hard back in April when the curve had a large negative slope.

In recent Wraps, we have flagged ‘end of cycle’ trades (for investors) looking at curve flatteners in already steep swap curves. The 3 month forward 2s/5s or 3s/10s curves for example and they have flattened. As a short to medium term trade, they carry weight on absolute and relative ways.

Longer than this and we come back to the view from economics that the labour market does soften- which was the Westpac forecast all along and was higher than the flat line from the RBA. If this was to come to pass, then by mid-2026, the labour market weakness (jobless growth) brings softer consumption and real wages and thus a slowing in inflation, perhaps opening the door to very late cycle cuts. In that environment, the curves steepen again- as we saw in NZ. -MW

Commodities

Crude:

The prospect of the US pushing for regime change in Venezuela and a sharp slowdown in Indian purchases of Russian crude saw the January Brent contract briefly trade above $65, but close below it with the prospect of an additional hike from the OPEC8 over the weekend capping gains. The group announced an as expected 137Kbpd hike in production for December, bringing the cumulative target increase since April to 2.9Mb, though in a sign that OPEC was ‘blinking’ ahead of an expected glut, they announced that the group would pause production increases in Jan, Feb and March. This makes sense to us. Total OPEC production has increased by 2Mbpd over the past 6m, and global crude production has risen by 4Mbpd over the same period. Meanwhile, average global consumption this year so far is up just below 1Mbpd versus last year. Little wonder then that our measure of global crude inventory has remained above seasonal levels since July and is likely to remain so through the end of the year as that seasonal slump adds to inventory. Hence, we see Brent as increasingly capped by $65 and stuck in a $60/$65 trading range with an eventual break below $60, though that next leg lower looks to be a 2026 story.

Metals:

We have argued for a cautious stance on copper at current record highs. Comex copper inventory keeps on surging, while Shanghai keeps on rising. We expect to see an increase in Chinese exports of refined copper given the decline in Chinese copper premium towards a 1yr low given the record LME price. However, election related violence in Tanzania could see supply from Africa impacted. Typically, about 2/3 of African copper shipments to China move through Dar es Salam port. In addition, the China Nonferrous Metals Industry Association last week urged the authorities to consider a move to curb new copper smelting capacity, copying a practice the government put in place in its giant aluminium industry. So, a pause in copper here is simply a pause that refreshes before fresh record highs.

Bloomberg columnist and commodity guru Javier Blass last week added a little bit of weight to our argument that aluminium fundamentals need to be better understood here. While we may be suffering from selection bias, Blass argued that aluminium “has all the elements for a squeeze”. We continue making the point that Chinese aluminium production is effectively stalling given that we are now hitting against the 45mpta cap. Throw in confirmation from Rio that the future of the 590kt Tomago refinery in Australia is under review, and prices have had a good crack at $2,900, a fresh 3 1/2yr high. With a 47% premium for aluminium landed in the US versus Europe, and the all in US price at close to all-time record highs, then we are hearing stories that Canadian aluminium is starting to flow back into the US again. Hence, we are still targeting $3,000, though weaker Asian demand cautions much beyond that.

Gold:

With gold ETF selling in 8 of the last 10 sessions and 2 of the last 4 weeks, plus the heaviest week of selling on record last week in the main Chinese ETFs, then it’s clear that retail investors have played an important role in the correction in gold. News that China has ended a VAT benefit on gold bar, ingot and jewellery bought from the Shanghai Gold Exchange and sold directly to retail from November 1 will have added to that correction. We stick to the view that we are stuck in a $3,800-$4,300 range through the end of this year, though we want to use dips to the lower end of that range as an opportunity to buy.

Iron ore:

Iron ore remains much better bid than we have been expecting. Steel production is set to take another aggressive hit into the end of October as environmental production control measures led to increased blast furnace maintenance and temporary shutdowns across steelmaking hubs. The sharp deterioration in steel margins is not helping too. This is happening at a time when Chinese iron ore port inventory is rising more noticeably, and steel/ steel product inventory is also rising when it is normally slumping. With first shipment of iron ore from Guinea to China due in less than two weeks, we expect to see weaker iron ore prices into the end of the year and remain confused why we are still above $100-RR

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AUD Rates Morning Chartpacks - 7 November

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