Australia: The Australian Dollar has come off from its recent high on Friday night of 0.8550 as investors trimmed their positions ahead of the long weekend in the US (Memorial Day today) and the UK (May Bank today as well). As has been case for months now, how goes the equity markets so goes the Australian Dollar, which opens trade this morning around 0.8450. The Dow and S&P 500 both fell 1.2% on Friday while the European indices were generally flat. Most analysts pointed to the downgrade on Friday of Spain’s sovereign debt from AAA to AA- by Fitch for the decline in equity markets. Interestingly it was one month ago S&P lowered its debt rating one notch to AA. Also weighing on the US market were basically flat results for personal spending (up 0.3% in April as expected) and personal income, which rose by 0.4%, also expected. The savings rate continued to rise to 3.6% while there was a small lift in consumer confidence as measured by the University of Michigan. It is a busy week for data in Australia with credit growth, current account balance and net exports for Q1 today followed by the RBA’s interest rate decision tomorrow which we expect will see no change in the cash rate of 4.5%. GDP for Q1 comes on Wednesday, which is expected to show growth of 0.7%. We expect the AUD to trade in a tighter range over the next 2 days due to the holidays in the US and UK markets and the significant trimming of speculative long AUD positions that have been wound down in the last 2 weeks.

Majors: The USD Dollar was stronger against the EUR around 1.2260 and the USDGBP is trading slightly weaker at 1.4450. UK consumer confidence for May worsened slightly from the previous month. We expect the AUD cross rates to show some modest improvements in the next few days assuming the expectations on data announcements are met.