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■ AUD/USD was directionless overnight and is trading near 0.6590. Our Australian economics team expect the Reserve Bank of Australia (RBA) to leave the cash rate unchanged in a straightforward decision today (2:30pm Sydney time). They expect the RBA’s post‑meeting statement will retain its ‘neutral bias’. But some softening in the language around the persistence of Australian inflation is more likely than not given last week’s CPI report which can weigh on AUD/USD at the margin. We expect the US election to be more important in driving AUD/USD. A decline in the perceived odds of President Trump winning over the weekend has supported AUD/USD.
■ USD index consolidated around 103.7pts overnight. US Treasury yields fell across the tenors. The 10 year Treasury yield fell by about 9bp to near 4.3%. Focus remains firmly on the highly anticipated US presidential election today. The first influence on financial markets will be the release of the exit polls published by major US news organisations between 11am to 2pm Sydney time tomorrow. ■
Over the weekend, the betting markets have moved in favour of Vice President Harris winning the upcoming US presidential election. We judge financial markets are now positioned for a Harris win. The USD can therefore fall modestly by 1%‑2% this week if Vice President Harris wins and lift materially if President Trump wins. Any delays and/or disputes over vote counting can also add to currency volatility this week.
■ AUD/JPY traded in a tight range around 100.2 overnight. USD/JPY remains about 9% above its mid‑September low. Higher US Treasury yields have been the main driver of USD/JPY gains in our view. Chart of the day discusses why the 10 year Treasury yield has risen rather than fallen since the start of the FOMC’s rate cutting cycle. Treasury yields can rise further if President Trump wins. The extent of the rise in Treasury yields will likely depend on the balance of power in Congress. That said, we expect USD/JPY can fall rather than lift in the event of a Trump win because we expect safe haven demand to outweigh any increase in US yields. A higher prospect of a trade war between the US and China increases uncertainty about the world economy and therefore saps risk appetite.
■ AUD/CNH is trading just above 4.6800. The Chinese government’s mouthpiece Xinhua News Agency reported the National People’s Congress Standing Committee discussed a plan to lift local governments’ debt ceiling to swap out their off‑balance‑sheet debt. The report didn’t provide details on the plan or mention other policy measures. However, the finance minister has previously flagged that local governments will be allowed to use proceeds from special bonds to buy unsold homes for social housing. Focus is also on whether the government will again increase its budget deficit ratio for 2024 to allow for fresh stimulus.
Mid-market rates.
| Currency Pair | Mid-market rate |
| AUD/USD | 0.6581 |
| AUD/NZD | 1.1022 |
| AUD/JPY | 100.17 |
| AUD/CNH | 4.6828 |
| AUD/EUR | 0.6052 |
| AUD/GBP | 0.5081 |
| AUD/HKD | 5.1148 |
Chart of the day
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