The Aussie dollar took yesterday’s strength seen in yesterday’s domestic session rising to overnight highs of 88.45 US cents coinciding with bounce in US equities which saw the S&P 500 rise 1.14 percent on the day. US equities were able to recover from steep losses earlier in the session despite mixed reports on the health of the US housing. Housing starts fell 5 percent to an annual rate of 549,000, economists had predicted a more subdued fall of 2.7 percent. Building permits surpassed estimates to record annual growth of 2.1 percent in June to an annual rate of 586,000. A pickup in sentiment helped the US dollar find strength against the ultimate safety of the Yen; however the appeal of the low yielding greenback was weaker against major counterparts helping key commodities on an upward trajectory.Locally, The Reserve Bank of Australia yesterday released the minutes of the July meeting in which the bank kept benchmark interest rates at 4.5 percent. The bank indicated key inflation data to be released later this month is likely to be the focus to determine if interest rates require adjustment. However the minutes presented a somewhat more dovish stance than originally thought with the bank expecting core Inflation (which excludes volatile prices items such as some foods and energies) are expected to will continue to “moderate in year-ended terms, to be below 3 per cent for the first time in three years.” The RBA will also have key global events in sight such as Europe’s banking stress test, which may have a “significant impact on financial markets and global confidence.”
Although the minutes failed to provide any real steam behind the Aussie dollar, subsequent comments from RBA governor Glenn Stevens during a speech in Sydney kept the Aussie well bid as Stevens suggested a rate hike during the election in August could be on the cards if economic feedback presented the need.
At the time of writing the Aussie remains well bid around 88.4 US cents – we are likely to see the local unit ease lower in the domestic session with little in the way of economic feedback. If we see further upward momentum on the back of equity market strength – resistance at 88.7 US cents will be hard to break in the domestic session. Local economic data today includes the Westpac leading index for May.