The Greenback is Mixed as Americans Vote; Aussie Sold after RBA Signaled Its Fifth Hike may be its Last

The US dollar is mixed today, as Americans vote in the midterm elections.  There does not seem to a robust pattern for the dollar around the midterm elections, but the S&P typically does well in the fourth quarter of the mid-term year, and with even more regularity, the S&P rallies in the third year of a presidential term (2027).  

There have been two notable developments today. First, as anticipated, the Reserve Bank of Australia delivered its fifth hike of the year today, and encouraged market speculation that the tightening cycle is over. The Australian dollar, which has been buoyed by the tighter monetary policy, is the weakest of the G10 currencies today, off nearly 1/3 of 1% to its lowest level in a little more than two weeks. Second, the PBOC announced an increase reserve requirement for foreign currencies. This, coupled with the first back-to-back increase in the dollar’s fix in a little more than a month, suggests a period of consolidation may be at hand. 

Prices 

G10

• The euro peaked in early European turnover yesterday, slightly above $1.1235. Sellers in North America brought it back to a little below $1.1190 in late dealings. It is trading quietly between almost $1.1175 and nearly $1.1210. Yesterday’s low was closer to $1.1150. Options for almost 2 bln euros expire today at $1.12.

• The dollar was confined to roughly JPY157.60-JPY158.00 against the yen yesterday and almost $900 mln of options at JPY158 expire today. Japanese markets are closed for a national holiday today, but the greenback reached JPY158.30 in Europe morning, a four-day high today. In the bigger picture, the dollar is mired in a sideways range against the yen. It settled once above JPY158.50 since September 24 and twice below JPY157.00 last month. 

• Sterling, which reached almost $1.3440 in early European trade yesterday was confined to a narrow range around $1.3420 throughout the North American session. Options for almost GBP525 mln at $1.3410 expire today.  The 200-day moving average was frayed for the second consecutive session, it has not settled above it since mid-September. Sterling has been confined to a little more than a quarter of a cent above $1.3395 today and stalled near the 200-day moving average, found near $1.3225 today. 

• The US dollar recorded traded slightly above the pre-weekend high (~CAD1.3990) against the Canadian dollar in late dealing yesterday. Recall that the CAD1.3965 area corresponds to the (61.8%) retracement of the US dollar rally from the September 8 low (~CAD1.3760). It was first tested on October 23, though before last weekend, it reached almost CAD1.3940.  It has been turned down from nearly CAD1.40 today and is probing the CAD1.39650 area. A break of last week’s low could spur a test on the CAD1.3890-CAD1.3900 area. 

• The Australian dollar slipped settled below $0.7000 yesterday for the first time since October 19.  The central bank delivered the widely expected hike, but the 6-3 decision, a less hawkish statement, and comments by Governor Bullock boosted market leanings that with many seeing it as the last hike in the cycle. The Aussie is the weakest of the G10 currencies today, off a little more than a third of a one percent. It has been sold to almost $0.6960, the (61.8%) retracement objective of the bounce from the October 15 low, slightly below $0.6900.  

EM 

• The Mexican peso rose by about 1.1% yesterday. That was its strongest advance since April. The price action looks like a top has been forged, but a convincing break of the MXN18.50 area would boost our confidence. The 20-day moving average is near MXN18.51, and the greenback has not settled below it since mid-September. The dollar is consolidating quietly so far today between about MXN18.5525 and MXN18.6070. Brazil’s central bank meets tomorrow and is expected to stand pat, with the Selic rate at 13.75%.  Mexico’s central bank meets on Thursday, and it is expected to keep its overnight rate target steady at 6.5%.

• The dollar settled below CNH6.65 against the offshore yuan for the first time since May 2022. The greenback has not settled high against the offshore yuan since October 14.  The PBOC’s announcement that starting in the middle of the month, the foreign exchange reserve requirement ratio would be raised by 2 percentage points to 6%. This coupled with the slightly higher dollar fix (CNY6.7150 vs. CNY6.7146 yesterday), which was the first back-to-back increase since late September, Beijing appears to have signaled a new phase in the management of the yuan. The dollar jumped to about CNH6.6755 against the offshore yuan after it settled near CNH6.6475 yesterday.  The CNH6.6780 area holds the 20-day moving average, and the greenback has not traded above it for nearly a month.  Above there CNH6.70 looks reasonable. 

• The Indian rupee strengthened today for the third consecutive session.  Yesterday’s slide in oil prices may have been a catalyst. The dollar fell to an eight-day low near INR94.6125 before recovering to settle a little below INR94.75. We note that Indian equity indices were the best performers in the Asia Pacific region today. 

Other Markets

• The Nasdaq Composite’s stunning downside reversal cast a pall over today’s equity market.  After entering the gap created by last Friday’s sharply lower opening but not filling it, the Nasdaq Composite tumbled from almost 25800 to 25145 in late turnover and settled below the pre-weekend low (~25177) The 200-day moving average is near 25064 today. It has not traded below it in seven months. It settled yesterday, down slightly more than 9.25% since the record on October 6.  SOX, the semiconductor index, settled ~3.4% lower for the third consecutive session. It is off almost 12% over the past three sessions and settled below the 200-day moving average for the second straight session for the first time since May 2025.  Outside of Hong Kong, Australia, New Zealand, and India, the other large bourses in the Asia Pacific region fell.  Europe’s Stoxx 600 is off around 0.3% after advancing about 0.4% yesterday. Nasdaq 100 futures are firm (~0.3%), but the S&P and Dow futures are trading with a heavier bias. 

• With the help of a large drop in oil prices, benchmark 10-year yields fell yesterday. European rates were mostly 3-9 bp lower, and peripheral premiums over Germany narrowed. The French 10-year premium settled near 175 bp on October 22 and yesterday approached 160 bp. Italy’s 10-year premium settled near 125 bp on October 22 and settled around 113 bp yesterday.  However, Asia Pacific bonds played catch-up, European yields have risen 3-5 bp today and the peripheral premiums are a little wider. The 10-year Treasury yield is also a little firmer and near 4.92%.

• Gold was tarnished by almost $147 an ounce before the weekend and recovered a little less than $70 yesterday. It briefly traded above $3970 yesterday after settling on the lows for the year at the end of last week (~$3870). It is trading heavier today and is straddling the $3900 in late European morning turnover. Silver was somewhat less impressive.  It recovered about $1.40 an ounce (to ~$50.50) after losing a little more than $3 before the weekend. It has been sold to a new low for the year today, near $48.60. 

• December WTI fell by about $7.6 a barrel (~7.6%) yesterday. It settled near $96.50 after having approached $95. With yesterday’s losses, it met the (50%) retracement of the rally from the early October low (~$86). It was the sharpest drop in five months.  Washington and Tehran appeared to signal willingness to pursue negotiations.  European gas prices also fell sharply (~11%), the most since late July.  However, there is a more skeptical attitude today and December WTI reached $98.70 in late European morning turnover.

Data

• While the US votes in the midterm elections, September JOLTS and factory orders will be reported while October vehicle sales will gradually trickle in. The Treasury will announce its quarterly refunding plans tomorrow amid expectations that the 20-year may be dropped entirely and the sales of the 30-year could be trimmed. The September trade balance, final October service and composite PMI are due alongside the ISM services Index also will be reported tomorrow. 

• Switzerland reported a firmer than expected October CPI. The EU harmonized measure by 0.4% for a 1.6% year-over-year pace. It is the third consecutive monthly increase in the year-over-year rate, which is now at its highest level since the end of 2023. The swaps market favors a hike at the end of Q1 27, but it is not fully discounted until the end of Q2 27.

• As widely expected, the Reserve Bank of Australia lifted its cash rate target for the fifth time this year.  The quarter-point hike brings the target to 4.85%.  However, many suspect this is the last hike in the cycle, and the statement and official comments have encouraged such a view. The futures market implies an end-of-2027 rate of 4.69%. It was at 5% in late September and 4.82% in the middle of last week.  New Zealand’s national election is this weekend.  The two main parties are polling around 30%, suggesting that smaller parties may be key in what could be drawn out coalition talks.  The Reserve Bank of New Zealand unexpectedly stood pat late last month, but the swaps market has 75 bp of tightening discounted in H1 27.

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