The US dollar finished last week on a low note against major counterparts with U.S stimulus expectations and moderate demand for risk assets guiding the way. In short, we have a Federal Reserve unwavering from their stance to keep interest rates at record lows while keeping the dream alive for those predicting further stimulus in the form of quantitative easing. Friday's less than inspiring U.S GDP reading represented a significant collapse in USD demand which was particularly apparent when looking at the USDJPY pair which slid below the 81-handle late last week despite additional easing from the Bank of Japan late last week. The pair made a notable decline on Friday finishing the week at 2-month lows around the ¥80.2 mark. Recent months have seen market participants recalibrate the chances of further policy easing, however feedback from the Fed suggest they will continue to err on the side of caution and maintain existing policy easing to avoid pulling the rug from under the market prematurely. Demand for risk was surprisingly stable despite further turmoil across the Atlantic after ratings agency Standard & Poor's downgraded Spanish debt. U.S indices closed higher with the DOW and S&P rising 0.18 and 0.24 percent respectively.
Support for higher yielding assets alongside a withering U.S dollar has paved the way for Australian dollar strength which has made a break to the upside of 104 US cents. The local unit finished the week at 104.6 US cents and remains well bid in early trade, albeit in illiquid conditions. The main event for the Aussie this week will be Tuesday's interest rate decision which is widely expected to see the RBA cut interest rates by 25 bps in response to weaker than anticipated growth amid a subdued inflation environment. With expectations of a rate cut well and truly baked into the market, Aussie dollar direction will be guided by the ensuing statement and of course if the RBA take the largely unexpected option of cutting more than 25bps. Other key directives from abroad this week include U.S non-farm payrolls on Friday with a host of top-tier economic data from the U.S earlier in the week including personal consumption expenditure and ISM manufacturing data.