Australia: The Australian Dollar has rallied more than one cent this morning after Friday night’s close to trade over 0.8800 after the PBOC (People’s Bank of China) announced on the weekend that it will make the RMB exchange rate more flexible in the future but will still maintain a trading band of +/-0.5%. The RMB has been pegged to the USD for the last 23 months from September 2008 when the global financial crisis hit its nadir with the collapse of Lehman Brothers. Initially the market expected that the RMB might appreciate up to 5% but Chinese authorities have said the RMB would remain basically stable. This nevertheless has pushed the AUD higher due to the prospect the RMB may appreciate and therefore make Australian exports cheaper for China in the longer run. This has also buoyed confidence in the equity sector since Chinese growth is considered to still be quite strong in the future. Even without this announcement the AUD was firmer on Friday night as US equity markets were slightly higher with the Dow up 0.2% to 10,451, the S&P 500 and NASDAQ each up marginally by 0.1%. Gold and oil were up but only by a small amount with gold increasing less than 1% to US$1257 an ounce and oil up to just over US$77 a barrel. We expect the AUD to trade higher in the next few days as the financial markets digests the RMB announcements.
Majors: The EUR had weakened against the USD to 1.2350 on Friday night but then has rebounded as the announcement on the RMB encouraged the market and the EUR has traded into the mid 1.2400’s this morning. The GBP also traded higher but the effect of the events on the weekend has seen the AUD cross rates push higher with AUDEUR in the high 0.7000’s, AUDGBP in the low 0.5900’s and the AUDJPY approached 80.