Asia Day Ahead: Attention on China’s policy cues, RBA meeting

Asia Open

The Asian session looks set to extend its gains this morning, with Nikkei +1.45%, ASX +0.16% and KOSPI +0.62% at the time of writing. Japan markets are back online following their holiday break yesterday. A series of Fedspeak thus far has leaned dovish, with several policymakers (Bostic, Kashkari, Goolsbee) throwing their support for last week’s 50 basis point (bp) cut, particularly with the Federal Reserve (Fed)’s Goolsbee guiding for “many more” cuts ahead. What it means may still be quite vague at current point in time, but policymakers’ shifting focus from inflation to supporting the jobs market is clearly displayed.

Chinese equities got a slight boost in yesterday’s session with a 10 bp cut in its 14-day reverse repo rate, but it seems more like a policy tweak, rather than a clear shift in policy support. The Nasdaq Golden Dragon China Index was up 1.4% overnight, but initial gains in the Hang Seng Index (HSI) fizzled. We will get more policy cues from authorities in their press conference today, which may set the backdrop for more rate support to come over the coming month, but a more measured policy approach should likely be retained.

Aside, there has not been much moves in US Treasury yields, largely ending the day where they started. The US dollar firmed slightly (+0.17%), but the strong paring of gains mid-day suggests that reservations remain in place amid the Fed’s policy pivot. All seemingly offer little market cues for now in what has been a quiet start to the week.

Attention to be on the Reserve Bank of Australia (RBA) today

The RBA meeting will also dominate market’s attention today. While the central bank is not expected to make any move in its cash rate, traders will side-eye on whether policymakers will deviate from their previous hawkish tone amid the Fed’s recent outsized rate cut.

It seems unlikely that we will get that today however, with policymakers potentially sticking to their resolve in tackling persistent inflation, buoyed by housing costs and services activities. While pricing pressures have somewhat eased over the past months, we may need to see inflation data edge below the 3.0% handle to offer policymakers’ more confidence around the disinflation trend. Expectations are for the RBA to adjust rates lower by 25 bp only in February next year.

AUD/USD trading at year-to-date high

The AUD/USD has made good progress since August this year, edging to a new year-to-date on a weaker US dollar, along with some hopes for further policy support in China. The 0.6867 level may serve as a near-term resistance confluence however, previously marking its highs on several occasions (June, July, December 2023). A close above the 0.691 level may be needed to validate buyers in further control. Failure to do so may keep the AUD/USD locked within its broader consolidation pattern, with near-term support to watch around the 0.656 level for any formation of a higher low.