UK Raises Deposit Protection Limit to £120,000 to Strengthen Saver Confidence 
Singapore Maintains Steady Monetary Outlook as Positive Output Gap Persists into 2025 
Japan’s Inflation Edges Higher in October as BOJ Faces Growing Pressure to Hike Rates 
Oil Prices Dip Slightly Amid Focus on Russian Sanctions and U.S. Inflation Data 
Gold Prices Slide as Rate Cut Prospects Diminish; Copper Gains on China Stimulus Hopes 
Japan’s Rising Inflation Strengthens Case for a Near-Term BOJ Rate Hike 
Kazakhstan Central Bank Holds Interest Rate at 18% as Inflation Pressures Persist 
Goldman Predicts 50% Odds of 10% U.S. Tariff on Copper by Q1 Close 
New RBNZ Governor Anna Breman Aims to Restore Stability After Tumultuous Years 
Lithium Market Poised for Recovery Amid Supply Cuts and Rising Demand 
RBA Signals Possible Rate Implications as Inflation Proves More Persistent 
Japan’s Finance Minister Signals Alignment With BOJ as Rate Hike Speculation Grows 
Geopolitical Shocks That Could Reshape Financial Markets in 2025 
The RBNZ has maintained the 'status-quo' in its monetary policy today. Kiwis central left the OCR unchanged at 1.0% at today's OCR Review as widely anticipated. The press release suggested that the RBNZ does not currently see a need to cut the OCR further. The overall assessment was that the outlook for monetary policy "has not changed significantly" since the August MPS. The RBNZ seems to be saying that its actions to date are sufficient. It noted that the OCR cuts to date have led to lower lending rates and a lower exchange rate; and, it expected low-interest rates to generate a pickup in domestic demand over the coming year.
We have remained short Antipodeans (both AUD and NZD) despite a lack of near-term local catalysts. We continue to maintain these recommendations but also increase AUD shorts via a bearish AUDJPY put spread this week. The primary motivation to increase AUD shorts is a shift in the RBA stance which indicated that the bar to cut rates has been lowered. At the recent minutes, the RBA made several surprising changes, which include conspicuously dropping the language around needing “additional evidence” to justify further cuts.
Quite a few economists perceive this as lowering the hurdle to easing policy further, and suggests less degree of patience from the Bank. The RBA has also increasingly acknowledged the influence from the global factors – both lower rates and global risks – as determining factors in the policy outlook. Taken all together, our economists have moved forward their expected 50bps of hikes remaining to October and February, from February and May previously.
The preferred way to increase AUD shorts is vs JPY as it would have the added benefit of being a hedge to US-China trade talks.
Given the lack of visibility on US-China trade talks and stabilizing data in the interim, we think that such a hedge is best positioned for via limited downside options (in this case a 3m put spread). We part finance this by selling AUDNZD topside as the cross is largely unchanged despite narrower differentials and growing expectations of RBA rate cut (refer above chart).
Trade tips:
Maintain shorts in NZDJPY via 6m put spread. Paid 1.07% initiated at the end of May. Marked at 1.79%.
Buy a 3m AUDJPY put spread (72.0/69.5) (spot ref: 73.2); sell a 3m 1.0975 AUDNZD call (spot ref: 1.0820). Paid 0.38%. Courtesy: JPM & Westpac
