Overnight, less than convincing economic feedback in conjunction with the Fed’s cautious outlook and focus on financial market regulation continued to weigh on markets. Investors continued to mull over the finer points of the Fed’s view of the economic outlook. On Wednesday the Fed held interest rates at record lows between zero and 25 bps and also maintained the current stance of exceptionally low levels of the federal funds rate for an extended period. Although the overall tone remains optimistic with the central bank stating the economic recovery is proceeding, they also cautioned financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.

Economic news from the US saw Durable goods orders contract 1.1 percent in May against the expected 1 percent growth. US equity markets reflected the cautious undertone with the Dow and S&P losing 1.4 and 1.7 percent respectively. On target jobless claims proved to be little concession – with the number of people claiming for unemployment benefits for the week ending June 19 rising by 457,000 in-line with expectations.

True to form, the low yielding heavy weight currencies benefited from the cautious market environment with the USD and Yen advancing against most major counterparts.The Euro was able to recover from overnight lows of US$1.2260 – the Euro is currently buying US$1.2335. The Aussie slipped below 87 US cents as risk aversion took hold – At the time of writing the local unit is buying 86.7 US cents

In the absence of economic data we expected Aussie movements to be guided by local equities. Key market moving themes in the near term will be conjecture over Julia Gillard’s revamped mining tax. Yesterday Australia’s new Prime minister held an olive branch to our heavy weight miners, conceding a need to negotiate.