Ahead Today
G3: HSBC Eurozone Services PMI, US Import Price, US ISM Services
Asia: RatingDog China PMI, Thailand CPI, HSBC India PMI
Market Highlights
We see quite a bit of divergence in FX and rates markets, including here in Asia, as market pricing for central bank policies adjust at different speeds and relative to the US, while some markets are seeing local stories including pressure for capital outflows. In particular, the Indian Rupee continued to see further pressure to weaken ever since RBI allowed the 88.80 level to breach earlier in November – a key level that RBI had been holding onto and defending since October. Onshore spot USD/INR rose to as much as 89.950 at one point, while there was meaningful paying interest in the forward curve both onshore and offshore, and more so in the near-leg. Overall, there continues to be a meaningful imbalance of supply and demand for Dollars in India, and this seems to be driven by higher import needs, a wider current account deficit, and importantly soft capital flows in FDI and portfolio inflows (see IndiaPulse – What ails INR? Balance of payments remains unbalanced). Moving forward, we expect India’s balance of payments to remain unbalanced, and have raised our USD/INR forecasts to target 90.8 with RBI likely to allow the pair to break the 90 level over time. Nonetheless, better current account seasonality in the March quarter, coupled with an eventual trade deal between US and India should later provide some relief to INR, and we are hesitant to be too bearish on INR at these levels.
Another key market where we see divergence is Australia, with very sharp moves in the Aussie rates space although so far less so in AUD/USD. Aussie 10-year yields have had a phenomenal move so far, rising from the local lows of 4.1% up to 4.63%, while 2-year yields rose from 3.4% up to 3.90%. The Aussie OIS rates market is now pricing in for close to 1 rate hike by the RBA by the end of 2026, a meaningful change and divergence with other G10 central banks, most of which are seeing rate cuts for now. These build on from relatively hawkish remarks from RBA Governor Michele Bullock, as she said that RBA is closely monitoring inflation pressures and is ready to act in the event that they show signs of regaining strength, with RBA alert to the possibility that demand and hence inflation could be more persistent than expected moving forward. On that front, Australia’s economy grew at a softer than expected pace in the 3rd quarter, rising 0.4% qoq (lower than consensus estimates of 0.7%), although the previous quarter was revised up slightly to 0.7% from 0.6%. Overall, whether the divergence between the AUD rates markets/rate differentials with AUD/USD can continue will likely be a function of both the persistence of inflation in Australia, and also global risk sentiment and China’s performance into 2026. For now the lead indicators we like to track such as metal prices tell us that demand remains quite firm at least into 1H2026, and hence we think that risk sentiment can still be supported into the next few months, and helping high beta currencies such as AUD as well.
