Good Morning,

Following yesterdays post rates decision slide, the Australian dollar remained under pressure overnight succumbing to broad based US dollar strength after the Federal Reserve minutes indicated little need for further policy easing initiatives.

In essence, the Fed's economic assessment suggests a sharp deterioration and weaker inflation is required in order to feasibly embark on another round of quantitative easing, in turn this forces a natural recalibration of US dollar positioning given a portion of the market had anticipated further easing initiatives. The minutes stated a couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate consistent rate of 2% over the medium run. Greenback strength promoted natural weakness across commodity and energy markets alongside moderate selling across US equities. The DOW and S&P closed down 0.49 and 0.40 percent respectively.

The local unit briefly touched 103-figure before a moderation of the selling kicked in, but has remained under pressure around current levels of 103.3 US cents. The Australian dollar underperformed against all major counterparts with exception to the Japanese Yen which also came under notable selling pressure against the US dollar in the ensuing period of the FOMC minutes.

To recap yesterdays rates decision, the RBA kept benchmark interest rate on hold at 4.25 percent. While the statement acknowledged growth in China has slowed, the board anticipates a more measured and sustainable pace in the future. Amid the general theme of neutrality, the final paragraph errs to a dovish tone stating the board expects the pace of output growth to be somewhat lower than earlier estimated, while expressing the need to evaluate forthcoming inflation data to ascertain the viability of an interest rate cut. Notably, the board anticipates inflation to hold between the 2-3 percent range over the coming one to two years, which does suggest ample scope to ease monetary policy. True to form, market participants reacted quickly to the ensuing statement with the Aussie dollar weakness immediately making clear the markets dovish interpretation.

Local data in focus today includes February trade balance which is expected to show a surplus of AUD1.12 billion from a previous deficit of AUD673 million. We anticipate short term support around the 103-figure to contain any selling noise throughout the session, however its clear the local unit remains in a vulnerable to further downside with a lower range between parity and 103 US cents expected in the weeks to come.

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