Crude oil price continues to trade around 70/71. Stocks and high-yield currencies also rally as investors' confidence improved after RBA Governor mentioned about rate hike. This has been viewed as a signal of economic recovery.

In the testimony to the Parliament, RBA Governor Glenn Stevens said that 'there will come a time when the exceptional monetary stimulus in place at present will no longer be needed' and the central bank will 'start adjusting interest rates back towards normal levels'.

The comment lifted AUD to 0.847, the highest since September 2008, against USD. We believe the major reason was interest rate differential. Since 3Q08, RBA has cut its policy rate by 425 bps from 7.25% to 3% which is the unprecedentedly low level in RBA's history. In the US, the Fed began monetary easing and has reduced the Fed funds rate to a range of 0-0.25%. At the FOMC earlier in the week, the Fed stated low level of interest rates will stay for a long period of time, erasing investors' hope on rate hike. Therefore, the gap on interest rates between US and Australia is set to widen soon.

Although improvement has been seen in economies, inflation remained tamed. Eurozone's CPI dropped -0.7% yoy in July, compared with consensus of -0.6%. On monthly basis, the decline was also -0.7%. Main contributor to the drop was fall in transport cost as fuel price plunged sharply from the same period last year.

Stock markets rallied in European morning before paring gains. Germany's DAX index trims early gain and is currently trading at 5409 , +0.15%, while France's CAC 40 Index rises +0.45% to 3540. In the UK, the FTSE 100 Index adds +0.22% to 4766.

Gold price edges higher to 958 in European morning. We believe this is mostly driven by weakness in USD, especially when further capital outflows have been seen in ETF investments and inflationary risk remains subdued. According to SPDR Gold Trust, bullion holdings dropped to 1065.49 metric tons as of August 13, down -0.7% from last week and -4% the same period last month.

Silver trades above 15 and is expected to record over +2% gain this week. Gold-to-silver ratio continues to trend lower. As global economy recovers, silver demand (particularly industrial demand) should improve and this will boost outperformance in silver price relative to gold.