Market Drivers for August 6, 2013
RBA cuts rates by 25bp buy statement less dovish
UK MP/IP beat big
Nikkei 1.00% Europe 0.04%
Oil $106/bbl
Gold $1292/oz.

Europe and Asia:
AUD RBA Rate Decision 25bo cut
AUD Trade Balance 0.60B vs. 0.81B
JPY Leading Index 107% vs. 108%
EUR German Factory Orders n/a
GBP Industrial Production 1.2% vs. 0.7%
GBP Manufacturing Production 1.9% vs. 0.9%

North America:
USD Trade Balance 8:30

Cable continued to press higher in morning London trade today after both Industrial and Manufacturing Production handily beat market forecasts, while Aussie staged a rebound despite another rate cut from the RBA as investors took solace from the the fact that this might be the last reduction for the time being,

In UK the economic data continued to point to a strong expansion as both Manufacturing and Industrial production increased at their best rate in more than 2 years. MP rose 1.9% versus 0.9% eyed while IP gained 1.2% versus 0.7% forecast. According to the ONS, “By far the largest contribution to the quarterly growth in production came from manufacturing, which increased by 0.7% following a decline of 0.2% in Q1 2013.”

UK economic data has now notched an impressive string of upside surprises as all key sectors – services, manufacturing and construction are expanding well above consensus expectations. The positive news is finally translating into gains for the pound which spiked to a high of 1.5393 in the aftermath of the release. For the time being the pair continues to find stiff resistance at the 1.5400 figure, but if it can clear that level it opens up the path towards 1.5700 over the next several weeks.

One key barrier will be tomorrow’s BOE Inflation report and the speech by Governor Carney, with traders looking for any signs of dovishness from the new BOE chief. If Mr, Carney downplays the recent improvements in data cable could trade off the recent highs, but if he assumes a more bullish posture, the pair could catapult through the 1.5500 level as markets will view his remarks as a green light for more appreciation.

Meanwhile in Asia, the RBA cut the benchmark rate by 25bp to 2.50% and went through its usual litany of statements noting that growth will remain below trend, that inflation will remain tame and that the Australian dollar despite having declined by more than 18% off its highs still remains overvalued. However, in its concluding paragraph the RBA stated that, “At today’s meeting, and taking account of recent information on prices and activity, the Board judged that a further decline in the cash rate was appropriate. The Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.”

The fairly neutral statement by the Australian monetary authorities that offered no hint of any additional cuts in the near future, was taken positively by Aussie bulls and the pair rose through European session taking out the psychologically key 9000 level by mid morning trade. The next key event for the pair will be the AU employment report due Thursday. If the data shows some stabilization it would take the pressure off the RBA to ease more and could extend the recovery in Aussie.

In North American trade the economic calendar is relatively sparse with only the Trade Balance figures on the docket. EUR/USD continues to trade in very tight 1.3200-1.3300 range having failed at the top end for several days in a row. However, given the general bid on the high beta currencies today, the pair my finally clear that barrier as the day proceeds.

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