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Dollar traded steady in Asian session, with traders showing little appetite for new positions ahead of key inflation data. The September CPI report, due later in the day, is expected to show a 0.4% monthly increase in headline prices and a 0.3% gain in core CPI, which would push the annual headline rate up to 3.1% while leaving core steady at 3.1%.

While the CPI outcome is unlikely to derail the Fed’s plan to ease this month, it could help determine the pace of cuts going forward. Markets are currently assigning more than 90% probability to another reduction in December. A hotter print could raise the chance of delaying the next move. Beyond Fed implications, the CPI release is also seen as a volatility trigger for broader markets that have drifted without clear direction.

On the trade front, U.S.–Canada trade relations took a sudden turn after US President Donald Trump declared all negotiations with Ottawa “terminated,” citing a “fraudulent” advertisement featuring Ronald Reagan criticizing tariffs. The Ronald Reagan Presidential Foundation later said the ad used “selective audio and video,” adding that it was reviewing legal options. Canadian Prime Minister Mark Carney on the other hand, vowed not to grant “unfair access” to U.S. markets if ongoing trade discussions collapse.

At the same time, attention is shifting to Kuala Lumpur, where senior officials from the U.S. and China are set to meet on Friday to defuse trade tensions. Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer will hold talks with Chinese Vice Premier He Lifeng to prevent a further escalation ahead of next week’s planned Trump–Xi summit. The talks are crucial to averting a new wave of 100% tariffs on Chinese goods, set to take effect on November 1, in retaliation for Beijing’s expanded export controls on critical rare earth materials.

Overall for the week so far, commodity currencies are generally strong, with Kiwi leading, followed by Aussie and Loonie. Yen is pinned at the bottom, followed by Sterling and Euro. Swiss Franc and Sterling are trading mid-pack.

In Asia, at the time of writing, Nikkei is up 1.33%. Hong Kong HSI is up 0.47%. China Shanghai SSE is up 0.45%. Singapore Strait Times is up 0.23%. Japan 10-year JGB yield is down -0.01 at 1.651. Overnight, DOW rose 0.31%. S&P 500 rose 0.58%. NASDAQ rose 0.89%. 10-year yield rose 0.038 to 3.991.

Japan CPI core Rises to 2.9%, ending three-month slowdown

Japan’s inflation picked up in September, with core CPI (excluding fresh food) rising from 2.7% to 2.9% yoy, matching expectations and marking the first acceleration in four months. The key gauge has stayed at or above the BoJ’s 2% target since April 2022. Headline CPI also rose from 2.7% to 2.9% yoy, in line with the core measure.

Underlying momentum was uneven. Core-core CPI, which strips out both energy and fresh food and is considered a closer measure of domestic demand, slowed to 3.0% from 3.3% yoy, suggesting that broader inflationary pressures are gradually easing.

Food prices continued to rise, but at a slower pace — non-fresh food prices gained 7.6%, down from 8.0% in August. Rice prices, which spiked earlier this year, rose 49.2%, their fourth consecutive month of deceleration after peaking at more than 100% growth in May.

Meanwhile, service prices, a metric closely watched by the BoJ for its link to wage growth, increased 1.4%, slightly below August’s 1.5%.

Japan PMI composite falls to 50.9, weak Yen keeps inflation hot

Japan’s private sector lost further momentum in October, with both manufacturing and services activity softening, according to S&P Global’s Flash PMI survey. The Manufacturing PMI slipped from 48.5 to 48.3, extending its contraction, while Services PMI fell from 53.3 to 52.4. As a result, Composite index eased from 51.3 to 50.9, signaling the slowest pace of overall growth since May.

Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said the survey showed the first decline in new business in 16 months. While the services sector remained the key driver of growth, its fading strength “will be a point of concern” as manufacturing continues to struggle. The factory sector’s downturn deepened, with new orders falling at the fastest pace in 20 months.

Inflationary pressures, however, remained elevated. Both input costs and output charges continued to rise at historically strong rates, driven by higher wage, fuel, and material costs, and alongside by a weaker Yen.

Australia PMI composite ticks up to 52.6, easing inflation keeps RBA on easing track

Australia’s private sector activity sent mixed signals in October, according to the S&P Global Flash PMI survey. Manufacturing PMI slipped back into contraction, falling from 51.4 to 49.7, while Services PMI rose to 53.1 from 52.4, lifting the Composite PMI modestly from 52.4 to 52.6. The data suggest that overall business activity grew at a slightly faster pace at the start of Q4, though the underlying picture remains uneven across sectors.

According to Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, the divergence between sectors was striking. Manufacturing “notably worsened,” with new orders dropping further and factories shedding jobs amid pressure on profit margins.

In contrast, services activity expanded at a solid pace, but even there, new business growth and hiring momentum slowed, and business confidence weakened.

On a positive note, price pressures continued to ease, with output price inflation falling to a five-year low. This cooling in inflation dynamics should reassure the RBA, which remains on track to pursue further monetary easing.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.3981; (P) 1.3993; (R1) 1.4006; More...

USD/CAD is still extending the corrective pattern from 1.4078. Intraday bias stays neutral for the moment. While deeper retreat cannot be ruled out, further rally is still expected as long as 1.3930 support holds. Current development suggest that rise from 1.3538 is reversing whole fall from 1.4791. Above 1.4078 will target 61.8% retracement of 1.4791 to 1.3538 at 1.4312.

In the bigger picture, price actions from 1.4791 medium term top is likely just unfolding as a correction to up trend from 1.2005 (2021 low). Based on current momentum, rise from 1.3538 is the second leg, and a third leg should follow before up trend resumption. That is, range trading is set to extend for the medium term. For now, this will remain the favored case as long as 1.3725 support holds.

Key Highlights

• USD/JPY started a fresh increase above 151.50.
• It cleared a key bearish trend line with resistance at 150.85 on the 4-hour chart.
• EUR/USD is again moving below the 1.1620 support.
• The US CPI could increase 3.1% in Sep 2025 (YoY).

USD/JPY Technical Analysis

The US Dollar remained supported near 149.40 against the Japanese Yen. USD/JPY started a fresh increase above 150.00 and 150.50.

Looking at the 4-hour chart, the pair traded above a key bearish trend line with resistance at 150.85. It settled above the 151.50 resistance, the 200 simple moving average (green, 4-hour), and the 100 simple moving average (red, 4-hour).

There was a clear move above the 50% Fib retracement level of the downward move from the 153.27 swing high to the 149.37 low. On the upside, the pair faces resistance near the 153.27 high.

The next hurdle could be near 153.50. A close above 153.50 resistance might push the pair to 155.00. On the downside, the pair might find support at 152.00. The main support might be 150.85 and the 100 simple moving average (red, 4-hour).

A close below the 100 simple moving average (red, 4-hour) could start a major pullback toward 150.00. Any more losses might open the doors for a test of 148.80.

Looking at EUR/USD, the pair started a recovery wave, but the bears might remain active below the 1.1700 and 1.1720 levels.

Upcoming Key Economic Events:

• US Consumer Price Index for Sep 2025 (MoM) – Forecast +0.4%, versus +0.4% previous.
• US Consumer Price Index for Sep 2025 (YoY) – Forecast +3.1%, versus +2.9% previous.

Japan’s inflation picked up in September, with core CPI (excluding fresh food) rising from 2.7% to 2.9% yoy, matching expectations and marking the first acceleration in four months. The key gauge has stayed at or above the BoJ’s 2% target since April 2022. Headline CPI also rose from 2.7% to 2.9% yoy, in line with the core measure.

Underlying momentum was uneven. Core-core CPI, which strips out both energy and fresh food and is considered a closer measure of domestic demand, slowed to 3.0% from 3.3% yoy, suggesting that broader inflationary pressures are gradually easing.

Food prices continued to rise, but at a slower pace — non-fresh food prices gained 7.6%, down from 8.0% in August. Rice prices, which spiked earlier this year, rose 49.2%, their fourth consecutive month of deceleration after peaking at more than 100% growth in May.

Meanwhile, service prices, a metric closely watched by the BoJ for its link to wage growth, increased 1.4%, slightly below August’s 1.5%.

Japan’s private sector lost further momentum in October, with both manufacturing and services activity softening, according to S&P Global’s Flash PMI survey. The Manufacturing PMI slipped from 48.5 to 48.3, extending its contraction, while Services PMI fell from 53.3 to 52.4. As a result, Composite index eased from 51.3 to 50.9, signaling the slowest pace of overall growth since May.

Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said the survey showed the first decline in new business in 16 months. While the services sector remained the key driver of growth, its fading strength “will be a point of concern” as manufacturing continues to struggle. The factory sector’s downturn deepened, with new orders falling at the fastest pace in 20 months.

Inflationary pressures, however, remained elevated. Both input costs and output charges continued to rise at historically strong rates, driven by higher wage, fuel, and material costs, and alongside by a weaker Yen.

Full Japan PMI flash release here.

Australia’s private sector activity sent mixed signals in October, according to the S&P Global Flash PMI survey. Manufacturing PMI slipped back into contraction, falling from 51.4 to 49.7, while Services PMI rose to 53.1 from 52.4, lifting the Composite PMI modestly from 52.4 to 52.6. The data suggest that overall business activity grew at a slightly faster pace at the start of Q4, though the underlying picture remains uneven across sectors.

According to Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, the divergence between sectors was striking. Manufacturing “notably worsened,” with new orders dropping further and factories shedding jobs amid pressure on profit margins.

In contrast, services activity expanded at a solid pace, but even there, new business growth and hiring momentum slowed, and business confidence weakened.

On a positive note, price pressures continued to ease, with output price inflation falling to a five-year low. This cooling in inflation dynamics should reassure the RBA, which remains on track to pursue further monetary easing.

Full Australia PMI flash release here.

US–Australia rare earths deal aims to counter China’s hold over the industry. National comparative advantage comes down to an ability to pivot and adapt.

• If one country has a chokehold over a key commodity or product, buyers of that product will seek counters to that chokehold. This is especially the case for products that are essential to military applications.
• The Australia–US deal on rare earths needs to be seen in that geopolitical context. The market is not particularly large or remunerative. However, the potential cost of losing access to these minerals means that countries will not want their supply to be monopolised by a single country.
• The rare earths situation highlights some limitations to the logic of comparative advantage driving trade patterns under free trade. Firstly, defence considerations might require countries to invest in industries that a pure comparative advantage calculus would not support. Secondly, comparative advantage is static and says little about the opportunities a country could or should take advantage of in future.

In jujitsu and other martial arts, you don’t only learn how to put someone in an arm lock or a chokehold. Even more important is to learn how to get out of them (especially for female practitioners, who are more likely to need to defend themselves than to attack someone else). Students spend at least as much time learning how to counter an attack as how to perform the attack itself.

This week’s US–Australia deal on rare earths investment can be seen as an effort to counter a chokehold, in this case China’s dominance of rare earth minerals production. This is not a new issue: China has dominated this industry for more than a decade and banned exports of rare earths to Japan for a period back in 2010. It was obvious that China could put the chokehold on. Indeed, we have previously highlighted access to rare earth deposits and processing capability as top priorities for Australia’s national security agenda. The Australia–US deal has apparently been in the works for some time, though its announcement so soon after China tightened export restrictions can hardly be a coincidence.

The bigger question is why it has taken so long for the US and other western countries to settle on a counter. Perhaps there was a belief that China would not really go through with a full chokehold for long. This would be surprising given that the US was already trying to do the exact same thing to China with advanced semiconductors, and has been since the Biden administration.

Another issue is that – were it not for the national security implications of delegating production of rare earths and magnets to a single country and potential adversary – the rare earths industry is not particularly attractive. The market is not that large; there is no iron-ore-size mining boom for Australia in this deal, as the RBA has recently pointed out in relation to critical minerals more broadly.

Moreover, despite their collective name the minerals themselves are not particularly rare. What is rare is the societal willingness to deal with the pollution involved in processing them. (Current processing methods generally involve toxic chemicals and, in some cases, radioactive by-products, thus our earlier call for research to develop cleaner methods.) It would be difficult for other countries to enter this industry and compete on price with (subsidised, state-owned) Chinese processing. Short-term financial incentives push buyers in the direction of the low-cost producer, even if that means that everyone is beholden to a single supplier, handing the latter the means to put on a chokehold in future.

The deep and counterintuitive insight of trade economics is that even if one country is more efficient at producing everything, the world is better off if it concentrates on the things it has a comparative advantage in, that is, where its relative advantage is greatest. Other countries will then produce the things where their absolute disadvantage is least, and thus they have a comparative advantage.

From this perspective of comparative advantage, it is easy to see why China has ended up dominating in critical minerals, especially rare earths. China has a large fraction of the proven deposits of the relevant ores, with more in countries it has close relationships with such as Myanmar. It is also more willing to subject itself to the level of pollution involved in processing these ores than western countries are and can therefore process them much more cheaply. While China may well have absolute cost advantages in other kinds of manufacturing as well, those are areas western countries are willing to engage in. The comparative advantage is therefore with rare earths, even before considering the deliberate policy steps the Chinese authorities took to consolidate that advantage.

The rare earths situation highlights that this insight only goes so far, though. Things can break down if the country that has the comparative advantage ends up being the monopoly producer of something that is a critical input into other countries’ production, and especially into defence applications. The theory showing that free trade is optimal presumes governments do not interfere in companies’ trading decisions. In the real world with real geopolitics, governments can choke off sales to an adversary nation.

Thus other considerations, such as national security, sometimes demand that countries invest in industries where they do not have a comparative advantage. One should want to avoid the risk of a future chokehold. The relevance of this risk to energy supply has long been known. It is also worth contemplating where else this consideration might apply, including other basic chemicals and active pharmaceutical ingredients.

The logic of comparative advantage is also only a static lens on a country’s advantages. Just because a country has no comparative advantage in a particular industry now does not mean that this will remain true forever. Comparative advantage tells you about the currently most efficient trade patterns. It does not tell you where to invest next to create future advantages and profitable niches. Comparative advantage four years ago would not have told you that Ukraine would now have a world-leading military drone industry. Comparative advantage ten years ago would not have told you that Australia would now have a $7½ billion export industry in software licences.

When considering Australia’s economic advantages, it is tempting to think only of the fixed, physical advantages such as our mineral resources and land suitable for various types of agriculture. And those are indeed advantages. The real advantage for a modern economy, though, is the ability to pivot and adapt to new circumstances. In that regard, Australia has a highly educated, English-speaking workforce; good health outcomes supporting labour supply; and high-quality, pragmatic policy norms and strong institutions. These support our national capacity to pivot when circumstances demand it, just as we have done in the past.

And while pivoting to a currently dirty, polluting processing industry might seem as incongruous for Australia as taking up jujitsu is for a fifty-something woman, it just might be that our longer-term wellbeing is better for it. Time for some of that quintessentially Australian pragmatism to approve projects quickly, mitigate the pollution risks and get the job done.

Key insights from the week that was.

With no data of note for Australia, the spotlight largely remained on the announced agreement between the US and Australia to jointly fund an expansion of rare earths mining and refining over the next 5-10 years. The intention behind the deal is clear. The US is concerned over China’s capacity to control global rare earth supplies and related technology, and so is determined to build out its own supply chain. Australia has suitable natural resources and logistics, and hence a targeted expansion of refined supply is in the best interests of both nations. The initial projects and overall structure of the deal have been well covered in the press throughout the week. Chief Economist Luci Ellis instead looks at the geopolitical context of the deal and its significance to both military and technological capacity.

Across the Tasman in New Zealand, at 1.0% the Q3 CPI printed in line with our expectations and just a touch above the RBNZ’s forecast. The result leaves annual inflation at 3.0%yr, the top end of the RBNZ’s range. Our New Zealand team do not expect the result to spark concern at the RBNZ, however, with the acceleration in inflation from Q2 to Q3 due to non-cyclical elements, specifically food and local council rates. In contrast, price increases for housing and discretionary retail were muted, consistent with the soft tone of recent spending data. Our NZ economics team continue to expect inflation to move towards the middle of the target range in 2026, allowing the RBNZ to continue to ease in the near term in line with activity conditions.

Further afield, markets were attuned to developments in China. Early in the week, Q3 GDP data came in broadly as expected at 5.2%ytd, putting authorities on target to achieve 5.0% growth for the full year. The monthly partial data for September painted a more sombre picture.

Fixed asset investment fell 0.5%ytd, in part reflecting the impacts of China’s anti-involution policies aimed at curbing current oversupply but, in time, continuing to re-direct investment into areas with the highest returns and sustainable profit margins. Retail sale growth also slowed to 3.0%yr, a lack of confidence in the outlook for the labour market and wealth continuing to weigh on discretionary demand.

It was with this backdrop that Chinese authorities confirmed their new five-year plan at the Fourth Plenum. Initial headlines point to authorities remaining focused on technological development and the scaling up of related industry. There is also a focus on the consumer and domestic demand highlighted by “increase[d] efforts to guarantee and improve people’s livelihood[s]” and an ambition to “improve the social security system”. The call to promote “high-quality development of the real estate sector” arguably highlights that households not only need more quality housing and community infrastructure to build lives in, but also the ability to accrue wealth sustainably throughout their lifetime. In our view, the focus on lifting domestic demand is necessary if growth is to remain near 5% come 2026 and beyond.

Elsewhere in Asia, Sanae Takaichi became Japan’s first female Prime Minister after securing a coalition between her Liberal Democratic Party and the right-leaning Japan Innovation Party. Having been PM Shinzo Abe’s protégé, Takaichi is known to be a fiscal expansionist, having previously put forward policies such as scrapping the gasoline tax and providing additional cash and tax credits to households. Recent bond auction results in Japanese bond markets have been weak suggesting markets are unsettled by some of her policies, particularly her affinity for raising issuance to fund additional spending. However, extensive fiscal expansion is unlikely given the minority government. Takaichi’s focus on improving the wellbeing of citizens has been received well, her approval rating standing at 71% according to a Yomiuri survey, mirroring that of Abe’s first term.

EURGBP: ⬆️ Buy

• EURGBP reversed from support area
• Likely to rise to resistance level 0.8735

EURGBP currency pair recently reversed from the support area located between the pivotal support level 0.8660 (which has been reversing the pair from the middle of September) and the lower daily Bollinger Band.

The upward reversal from this support area created the daily Japanese candlesticks reversal pattern Bullish Engulfing – which stopped the previous ABC correction ii.

Given the clear daily uptrend, EURGBP currency pair can be expected to rise to the next strong resistance level 0.8735 (which has stopped all upward impulse from April).

USDJPY: ⬆️ Buy

• USDJPY reversed from support area
•  Likely to rise to resistance level 153.40

USDJPY currency pair recently reversed from the support area located between the key support level 150.00 (former monthly high from September) and the 50% Fibonacci correction of the upward impulse from September.

The upward reversal from this support area created the daily Japanese candlesticks reversal pattern Hammer – which started the active impulse wave iii.

Given the clear daily uptrend and strong yen sales, USDJPY currency pair can be expected to rise to the next resistance level 153.40 (top of the impulse wave i from the start of October).