Global markets kicked off the month of August with a bounce as investors were encouraged by strong earnings by European banks. Better-than-expected economic news gave US investors a boost in confidence in an otherwise cloudy outlook. European stocks surged with the Frances CAC posting 3 percent gains and the German DAX not far behind finishing the day up 2.3 percent. US markets took the positive lead and ran with it with a helping hand from better than expected construction and manufacturing data.

The ISM manufacturing index which is a gauge of the overall health of the manufacturing sector beat estimates recording a level of 55.6 in July against the expected 54.6. Construction spending in the US surpassed estimates to record 0.1 percent growth in June, against the expected contraction of 0.4 percent. The upbeat mood came at the expense of the seemingly redundant greenback which continued to head on a downward trajectory against major counterparts.

Sterling was a standout winner on the day climbing to highs of US$1.5910 – at the time of writing sterling is buying US$1.5890. The Euro also remained well bid, rising to highs just shy of US$1.32. The Euro is currently buying 1.3172 - in sight of 200 MA which suggest bullish momentum.

The Aussie dollar rode the coat tails of the surge in investor confidence making a convincing break of 91 US cents to highs of 91.45 US cents. At the time of writing the Aussie is buying 91.2 US cents ahead of the much anticipated RBA interest rate decision at 14.30 AEST.
Today’s interest rate decision will almost certainly see the RBA hold rates steady at 4.5 percent, with last weeks Consumer Price Index showing the chances of an election month interest rate hike substantially decreased, given a moderation of inflation pressure in the second quarter.

However it will be the finer points that will be the primary driver for the Aussie today with investors looking for clues into the RBA bias for the direction of rates toward year-end and into 2011. Domestic currency drivers today also include building approvals and retail sales for the month of June. Retail sales expected to see a modest improvement to rise 0.4 percent in June from a previous 0.2 percent.