Australia: The Australian Dollar is trading under USD0.9300 following Sunday's proposed tax changes by Australia's Federal Government, and yesterday's decision out of China, when it instructed banks to increase capital ratios in a bid to slow lending. These two factors saw our AUD being sold and it remained that way in last night's offshore session. China's decision to ensure Bank's hold more funds in reserve is the third such increase this year alone, and is designed purely to stifle new lending amid fears of a property bubble and an overheating economy. AUD/EUR is around 0.7000, AUD/JPY near 87.00 and AUD/GBP is still slightly over 0.6000. Australian Prime Minister Kevin Rudd defended the centrepiece of his taxation reform package, the 40% tax on mining profits, which he announced will be used to pay for a cut in company tax and a range of superannuation measures. Local interest rates reacted to the news out of China, Greece and Australia yesterday, with the 90-day bank bill rate at 4.66%, up from Friday' close of 4.60%. The yield on the Commonwealth Government April 2020 bond is 5.78%. The conundrums that are our economy against many (most) major economies continues too after the release of data showing continued strong growth in house prices and an expansion in manufacturing activity at its fastest pace in nearly eight years, very interesting ahead of the RBA decision today. It is being surmised the announcement of Greece's rescue package may indeed weaken the case for hold with the RBA's decision today. We're not so sure. We feel there'll be a hold decision pre Federal Budget next week. Our forecast range for AUD/USD is 0.9210 to 0.9325.
Majors: The US Dollar strengthened against most major currency pairs last night. EUR/USD is below 1.3200 on concerns the bailout plan for Greece may not be supported by some of the Euro region's governments. GBP/USD is little changed after a choppy session while USD/JPY is stronger at 94.50. Spot gold advanced as concerns of sovereign debt in the Euro-zone increased it's lustre, rising 0.3% to US$1,182.30 / oz. Germany's mood on Greece's rescue package was nicely summarised by German Chancellor Angela Merkel...The ECB didn't take the decision lightly and won't do this forever...We have to see that Greece gets help from governments as long as it doesn't have the markets' confidence.