In a fairly subdued evening in terms of volatility, risk currencies remained buoyant overnight with the assistance of some moderate gains across global equities. After easing to lows of $US1.2558, the Euro was able to pare losses with the pair making a break to the upside of 1.26-figure and consolidating gains around current levels of $US1.2610. The Aussie dollar traded in a tight 50 pip range and remains supported around 102.8 US cents.
To recap yesterday's rates decision, as widely anticipated the RBA held the cash rate at 3.5 percent yesterday with the ensuing statement offering little in the way of new information to prompt a material shift in policy expectations. While acknowledging signs of further progress from the Euro region, the statement displays a cautious undertone noting the potential for further adverse shocks from the region. The statement shows the board remains comfortable with the inflation outlook which is expected to be consistent with their target range. While the RBA may have the ample breathing space to further ease monetary policy, the full impact of previous easing initiatives has yet to filter through the economy suggesting Stevens will maintain a steady course in the near-term to further assess both local and international conditions. With market participants sufficiently pricing-in the RBA will remain on hold, the period to follow saw more noise for the Australian dollar rather than any discernible direction.
European stocks recorded three consecutive day of gains driven by optimism central banks from both sides of the Atlantic will opt for new stimulus initiatives to underpin growth. The case for the European Central Bank to cut interest rates at this week's meeting become a little more compelling with Euro-Zone produce prices falling 0.5 percent in May, representing annual growth of 2.3 percent from a previous 2.6 percent. Subdued inflation from the Euro-Zones flagship economy Germany has also provided further weight to the argument of a near-term rate cut with last week's headline CPI data showing annual growth of 1.7 percent. Meanwhile, easing inflationary pressures may provide the Bank of England the ample breathing space to step-up easing measures with another £50 billion expected to be added to their quantitative easing tally at Thursday's policy meeting.
In a shortened trading day ahead of Independence Day, U.S markets gained overnight driven by solid reports on factory orders and auto sales. U.S factory orders outpaced expectations increasing 0.7 percent in May from a previous decline of 0.7 percent. Economist's consensus estimates showed expectations of a moderate 0.1 percent increase. Still, with yesterday's ISM manufacturing print for June still fresh in the minds of Investors, there remains a general reluctance to carry markets higher.
Locally the focus will now turn to May retail sales numbers which is expected to show 0.2 percent growth after a 0.2 decline in February. Also on the bill is local trade balance data and HSBC China services PMI.