RBA lifts cash rate to 4.85%, an 18-year peak; PBOC steps push yuan lower

Summary:

• Crude edged up after dropping roughly 4% on Monday, with US forces hitting targets on Iran's Qeshm Island after a US MQ-9 Reaper drone was reportedly shot down
• According to reports, a senior US official said the strike answered Iranian fire on a US aircraft and was not the beginning of wider US operations
• The RBA lifted its cash rate by 25 basis points to 4.85% on a 6-3 vote, the highest level in 18 years; the Australian dollar weakened after the announcement
• The PBOC raised banks' FX reserve requirement by 2 percentage points and set a higher, weaker yuan fixing; offshore yuan dropped 0.26% to 6.6642 per dollar, its steepest one-day fall since June
• Most Asian equity markets tracked US technology stocks down, with South Korea's Kospi off 3.7% leading the losses; Japan was shut for a holiday
• Apple guided to 7% to 10% revenue growth for the holiday quarter but a lower 45% to 46% gross margin as memory costs climb; Oracle is reportedly pricing a $10 billion share sale at an 11% discount

Crude gained a little in Tuesday's Asian session following US strikes on Iran's Qeshm Island, clawing back part of Monday's decline, which had come on hopes of a diplomatic breakthrough. Australia's central bank raised rates to an 18-year peak, actions by China's central bank dragged the yuan down, and regional shares followed a soft lead from US technology stocks.

Oil and Iran

Oil rose slightly, having shed about 4% on Monday as mediated talks between Iran and the US lifted hopes for a deal. Per reports, US aircraft hit Iranian sites on Qeshm Island, which sits at the entrance to the Strait of Hormuz, after Iran brought down a US MQ-9 Reaper drone. A senior US official was quoted as saying the strike answered Iranian fire at a US aircraft on Monday and was not the opening of a broader campaign.

The Wall Street Journal reported earlier that Washington has mounted a series of limited, undeclared strikes on Iran over recent weeks, and that Gulf states were advised to brace for a brief, intense operation once the US midterms are over. President Donald Trump said on Monday that the US had not been fighting Iran for months, replying “no” when asked about post-election strikes, although officials said he is weighing all options.

Separately, Axios said CIA Director John Ratcliffe has urged Trump to stick with a “no war, no deal” approach and let economic pressure keep working. Tehran said its contacts with Washington are continuing through mediators, after talks with Qatari officials closed without a breakthrough, and that its shortened seven-step proposal remains the basis for discussions.

RBA and the Australian dollar

The RBA lifted its cash rate 25 basis points to 4.85%, the fifth rise this year. Six board members backed the move while three wanted to hold. The bank revised its inflation forecasts up substantially, and now expects headline inflation to peak at 4.5% and remain above 3% until late 2027, pointing to costlier fuel and tighter domestic capacity. It said it would keep watching the data, but stopped short of flagging further hikes.

The Australian dollar, already soft along with the yuan (see below), declined once the widely anticipated decision landed. The divided vote led some in the market to speculate that this may be the last hike of the cycle, though the board gave no such hint.

A press conference by Reserve Bank of Australia Governor Bullock is still ahead, scheduled for 0430 GMT / 2330 US Eastern time.

China and the yuan

The People's Bank of China said it will lift the foreign exchange deposit reserve ratio for financial institutions to 6% from 4%, effective November 15, a step that drains onshore dollar liquidity. It also set a higher daily reference rate against the dollar. Taken together, the measures suggest a wish to curb the yuan's recent appreciation and may herald a spell of consolidation for the currency. Since Chinese interest rates sit low relative to peers, that could also add to the offshore yuan's appeal as a funding currency.

Offshore yuan slid 0.26% to 6.6642 per dollar, the biggest one-day fall since June.

Regional equities

Most Asian markets tracked US technology shares down. South Korea's Kospi lost 3.7% and the Kosdaq shed 3.8%, adding to recent strain on the region's chip-heavy bourses. The Shanghai Composite eased 0.7%, while Hong Kong's Hang Seng defied the trend with a 0.4% gain. Japanese markets were closed for a public holiday. US midterm elections are held on Tuesday.

Earnings and AI financing

Apple topped fourth-quarter forecasts with revenue of roughly $114.5 billion, up 12%, and earnings of $2.10 per share. On its call, the company guided to 7% to 10% revenue growth for the December quarter, but a gross margin of 45% to 46%, below the prior quarter's guided range, as memory prices continue to climb and Siri AI costs weigh. Apple also said it repurchased $24 billion of shares and has received most of its tariff refunds. Palantir beat third-quarter estimates and raised its full-year revenue outlook to about $8.53 billion.

According to reports, Oracle is poised to price a $10 billion share sale at an 11% discount, though the reference price behind that discount was not immediately clear. The sale runs alongside a $10 billion bond offering. Blackstone President Jon Gray said more equity fundraising will be needed to meet AI demand. Pershing Square, in its quarterly letter, described hyperscaler spending as offensive investment rather than defensive.