Despite strength in US equities, risk currencies largely failed to benefit from any risk-positive demeanor overnight with the Aussie dollar drifting lower over the course of US trade to finish largely flat on the day. The local unit retreated from overnight highs of 105.23 US cents as market participants pared back expectations of QE3 ahead of Friday's Bernanke speech - this encouraged broad greenback strength coinciding with gold crashing over US$100 an ounce.

As anticipated, the talk around the traps this week is all about Bernanke's address at Jackson Hole on Friday, with many market participants expecting the Fed boss to use it as a platform to indicate the need for further stimulus. While we agree Bernanke may use this event as a platform to inspire some confidence by indicating what's left in the Fed's bag of tricks; we do not expect any direct signal to the market suggesting another round of QE is on the cards in the near-term, given the risk to price stability. Recent inflation data suggest core inflation rose at an annual pace of 1.8% - between the Fed's unofficial 1.7 - 2% target - clearly not an ideal time to spur inflationary pressures.

Disappointing German IFO data failed to have a significant impact earlier in European trade despite all three sub-indices falling below expectations. The IFO 'expectations' component which is a forward looking indicator for business sentiment just managed to scrap over the line recording a level of 100.1 from a previous 105. An index level of 100 or greater is the divide between a positive and negative outlook. The Euro initially slipped to intra-day lows but managed to regain over 100 pips before resuming a downward trajectory.

Across the Atlantic, U.S. durable goods rose above estimates to record 4 percent growth in July from a previous contraction of 1.9 percent. Analysts had estimated durable goods to rise by a smaller 2 percent.

In the absence of any local data releases, we expect the A$ to adhere to price action in local and Asian equities. We expect the downside to be limited to around 104.4 US cents with any meaningful rally above 105 US cents is likely to be met with resistance around 105.30.  At the time of writing the Aussie dollar is buying 104.6 US cent.