Our confidence that the NZD/USD has bottomed increased after the Reserve Bank of New Zealand meeting. In line with our expectations, the RBNZ signalled that it may be near the end of its easing cycle. Since August 2024, the central bank has reduced its official cash rate by a total of 325 bps to 2.25%, close to the floor of its estimated neutral range of 2.5-3.5%, to support its weak economy.
The hurdles to another rate cut are high. Believing that 2Q25 GDP overstated the economy’s weakness, the RBNZ expects the past rate cuts will start to encourage consumer spending and support business sentiment amid easing domestic financial stress. It expects CPI inflation, which has risen for three consecutive quarters to 3% YoY in 3Q25, to return to 2% or the mid-point of its 1-3% target range by mid-2026. Anna Breman will take over as RBNZ Governor on December 1; she intends to focus on achieving low and stable inflation. Her appointment came after the departure of former governor Adrian Orr, who drew government criticism for losing control of inflation, prompting his resignation in March.
Combined with a softer USD backdrop, investors re-rated the NZD higher and began unwinding short NZD positions triggered by Fed Chair Jerome Powell’s late-October comments that a December cut was not a foregone conclusion. The 0.55 support level has proven to be a formidable support level during the Covid-19 pandemic in 2020, the Fed’s aggressive rate-hiking cycle to rein in high inflation in 2022, and more recently, US President Donald Trump’s reciprocal tariffs this year. Despite yesterday’s 1.4% rebound to 0.57, NZD/USD has scope to extend its recovery to 0.58, reversing the decline since late October.
European FX: GBP survived the Autumn Budget (Philip Wee)
UK financial markets responded favourably to the Autumn Budget. GBP/USD appreciated by 0.6% to 1.3240 while 10Y Gilt yield eased 12.2 bps to 4.423%, driven by the government’s perceived fiscal discipline and reduced risk of excessive borrowing. The Budget’s GBP26bn in revenue measures, centred on tax-based broadening and threshold freezes rather than sudden headline tax hikes, reassured investors that the Starmer government remained committed to stabilizing debt. The absence of aggressive spending cuts avoided undermining near-term economic growth, lifting the FTSE 100 Index by 0.9% to 9,692. The Office for Budget Responsibility (OBR) upgraded its 2025 GDP growth forecast to 1.5% from 1.8% in March but lowered its growth projection for the next five years to 1.5%, down from 1.8% in March. The OBR expects inflation to return to the 2% target in 2027, one year later than anticipated in March.
Chancellor Rachel Reeves introduced two modifications to the fiscal rules framework to provide greater flexibility to respond to economic shocks or spending pressures. First, the OBR will stop assessing the government's performance against the fiscal rules twice a year, at the Autumn Budget and Spring Statement. The decision to confine to one assessment at the main Autumn Budget is intended to provide greater policy certainty and reduce the “hamster wheel” of constant fiscal speculation. Second, Reeves has exempted investment, such as infrastructure spending, from the main fiscal rules, removing a key constraint to the government’s ability to invest in long-term projects to address productivity problems. Together, the government has maintained its overall strategy to ensure that day-to-day spending is met with revenue while driving economic growth through investment. The OBR confirmed that the government is on track to meet its rules and has more fiscal headroom than previously estimated.
GBP/USD has recovered to the May-October range of 1.3140-1.3790 after finding support at 1.30 in November. The next resistances are located at 1.3310 (25% Fibonacci retracement level) and 1.34 (50% Fibo), near the 50- and 100-day moving averages.
Quote of the Day
“It is my express wish that in awarding the prizes no consideration be given to the nationality of the candidates, but that the most worthy shall receive the prize, whether he be Scandinavian or not.”
Alfred Nobel
November 27 in history
In 1895, Swedish chemist Alfred Nobel established the Nobel Prizes through his will.
Topic
GENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates & Digital Assets)
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.