Key data brought positive news that the UK economy has taken a step forward overnight with the Manufacturing Purchasing Managers Index (PMI) for October recording a rise to 53.7 against the September result of 49.5. This aided the pound to reach highs of US$1.6478 overnight, but has since struggled to maintain momentum, retreating to current levels of US$1.6400. A similar theme saw the Euro hit highs of US$1.4845 overnight, with Euro-Zone PMI also outpacing expectation, rising to a 21 month high of 50.7 for October; a notable increase from September's recording of 49.7.
A switch in risk-appetite pulled the greenback lower against major counterparts with traders finding confidence in the latest data from the States. The ISM Manufacturing Index for October recording a rise to 55.7 (from Septembers 52.6) and Pending Home Sales also grew 6.1 percent in September after a 6.4 percent rise in August.
Locally, we are set for a big day with the highly anticipated Reserve Bank rates decision at 14:30pm AEDT. Financial markets are factoring a 25 bpt rise at the very least when the RBA meets today, however an attempt to pre-empt the inflation curve can't be ruled out, with some market experts of the belief a 50 bpt rise could be on the cards.
Yesterday's rise in the house price index certainly adds fuel to the fire, which at the very least adds credence to a 25 bpt rise in today's meeting. Whatever the case, we can expect movements on the Aussie Dollar to be highly re-active to this key data; with the market response likely to be fully realised upon the subsequent release of the minutes. Any short term strength on the Aussie could very well be overruled as global traders gear up for Wednesday's FOMC meeting in the States.
Late last week saw risk aversion dictate local market activity as US equity markets tumbled under the weight of renewed concerns the Fed may unwind economic stimulus. Although leading indicators such as last week's GDP result are providing positive signals, the premise of the removal of stimulus saw over 2.5 percent wiped from Wall Street. This sentiment demonstrates traders are willing to return to the safety of the dollar at the first sign of uncertainty which could prove to cap any short term gains on the Aussie dollar.