In the first two days of this week, commodity-led currencies led the recovery in Developed Markets. The DXY Index retreated a third day after hitting the significant resistance level of 107. The Trump Trade that boosted the greenback is facing challenges from Trump’s controversial cabinet nominations and the escalation in the Russian-Ukraine war. A break below 106 in the DXY, especially on lower US bond yields, could fuel more recovery in the commodity currencies if US bond yields start paying attention to the Fed again.
AUD/USD appreciated most by 1.1% to 0.6532. There were no surprises in the Reserve Bank of Australia’s Minutes for the November 4-5 meeting. The RBA was determined to keep monetary policy restrictive until it gained confidence that inflation was declining sustainably to the 2-3% target, which it saw happening in 2026. Expectations remain for the RBA to delay rate cuts to February 2025. The last time the AUD depreciated to 0.65 was in early August, driven by an aggressive unwinding of JPY carry trades. After the event risk played out, AUD/USD would realign higher with its positive bond yield differential against the US. The same will likely be the same for the current play driven by the Trump Trade.
CAD was second with a 1% appreciation to 1.3954 per USD. USD/CAD closed below 1.40 for the first time in four days, driven by a narrowing in the 10Y yield differential between US and Canadian bonds to 106.2 bps overnight from 116.2 bps last Friday. Do not expect the Bank of Canada to follow up with another outsized 50 bps rate cut at its meeting on December 11. Canada’s CPI inflation was surprisingly strong at 2% YoY (0.4% MoM) in October. Consensus had expected a lesser increase to 1.9% YoY (0.3% MoM) from 1.6% YoY (-0.4% MoM) in September. However, the Trump Trade that propelled the USD in the past 1.5 months must recede for USD/CAD to extend its fall below 1.40. The escalation in the Russia-Ukraine war in the past week has questioned the credibility of Trump’s campaign pledges. Meanwhile, Fed officials have not abandoned their rate cut plans on Trump’s tariff and tax cut pledges.
NZD/USD was third with a 0.8% gain to 0.5912. It was also the third time this year that NZD/USD fell to around 0.59 on the 10Y NZ-US bond yield differential narrowing to 10-20 bps. We expect the Reserve Bank of New Zealand to dial down its rate cut to 25 bps at its meeting on November 27. The RBNZ’s outsized 50 bps cut to 4.75% on October 9 was consistent with the significant decline in CPI inflation to 2.2% YoY in 3Q24 from 3.3% in the previous quarter. However, the RBNZ’s 2Y inflation expectations increased for the first time in five quarters to 2.12% in 4Q24 from 2.03% in 2Q24. The unemployment rate rose to 4.8% in 3Q24, missing expectations for a significant increase to 5% from 4.6% in September.
Quote of the Day
“Software is a great combination between artistry and engineering.”
Bill Gates
November 20 in history
Microsoft Windows 1.0 was released in 1985.
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates)
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.