From the FXWW Chatroom – The Caixin manufacturing PMI for China came in better than expected, in contrast to the official NBS gauge released yesterday. The headline Caixin index rose to 48.3, from a six-and-a-half year low of 47.2 in September. AUD is a touch firmer on the back of the release but we favour selling the AUD into strength, given that our economists believe last week’s Q3 inflation undershoot provides a window of opportunity for the RBA to ease further and expect a 25bp rate cut at this Tuesday’s meeting. Since forecasters are going into the announcement with a split view and rates markets are only pricing about 50% chance of an easing, the AUD should weaken if our forecast proves correct. Short positioning in AUD reduced during October from -28 to -16 currently (on a scale of +/- 50, please see here for more details), signalling there is room for FX investors to put on short AUD positions. In contrast to the RBA, we think the Norges Bank will stay on hold on Thursday. However, a further rate cut in December still remains likely, in our view, and USDNOK is also likely to be well-supported on pullbacks.
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