Market Drivers for July 16, 2013
RBA minutes suggest no cut – Aussie firms
UK inflation falls sending cable lower on further QE fears
Nikkei 0.64% Europe -0.58%
Oil $106/bbl
Gold $1282/oz.

Europe and Asia:
NZD CPI 0.2% vs. 0.3%
GBP CPI 2.9% vs. 3.0%
GBP PPI Input 0.2% vs. -0.2%
GBP PPI Output 0.1% vs. 0.1%
EUR German ZEW Survey 36.3 vs. 39.8

North America:
USD CPI 8:30
USD Net Long-term TIC Flows 9:00
USD Industrial Production 9:15
USD Manufacturing Production 9:15
USD NAHB Housing Market Index 10:00

The dollar strengthened against both the euro and the pound today as the data from Europe disappointed, but the Aussie saw some relative strength after the release of the RBA minutes suggested little possibility of another rate cut in August.

The RBA minutes essentially reiterated the central banks recent views, stressing that the Australian dollar remained too strong and noting that mining investments are close to or past their peak. However, the Australian monetary authorities stopped well short of suggesting that they were considering yet another rate cut in August in order to stimulate the economy.

The RBA stated, “Given the exchange rate adjustment that was occurring, and with the substantial degree of monetary stimulus already in place, members assessed the current stance of policy to be appropriate for the time being.” As a result, Aussie rallied in relief breaking above the 9200 in mid morning European trade.

The unit has been on a one way trip lower for the past several months, but it has recently found some support ahead of the 9000 level and has now stabilized somewhat. Today’s news is likely to act as further support for the pair and should strengthen the Aussie on the crosses, especially against the euro where it was once again nearing yearly lows.

The euro meanwhile came under some selling pressure after the ZEW survey printed a bit weaker than expected. ZEW came in at 36.3 versus 39.8, but economic sentiment improved to 32.8 from 31.8 forecast. The news helped to push the pair towards the 1.3050 level after it failed once again to take out the 1.3100 barrier.

Lastly, in UK the CPI data printed cooler than projected coming in at 2.9% versus 3.0% eyed. The biggest downward pressures came from air transport and food. Still with oil prices rising, input costs are likely to exert pressure in months to come and could reverse the generally declining trend in UK inflation. Nevertheless, cable fell in the aftermath of the release dropping to 1.5050 from 1.5120 as traders quickly assumed that lower inflation data will give BOE more scope to ease in the foreseeable future.

In North America today the calendar remains light with only CPI and Industrial Production on the docket. Yesterday’s weak Retail Sales took the wind out of the dollar rally and if today’s CPI data shows that inflation remains tame the greenback could see further weakness as the day proceeds with USD/JPY continuing to test support at the 99.50 level..

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