Market Drivers July 2, 2013
RBA keeps dovish bias but AUD/USD off the lows
EUR/USD pressured on equity selloff EURAUD flows
Nikkei 1.78% Europe -0.62%
Oil 98/bbl
Gold $1261/oz.

Europe and Asia:
AUD RBA Rate Decision remains dovish
JPY Labor Cash Earnings
EUR Euro-Zone PPI -0.3% vs. -0.2%
GBP PMI Construction 51.0 vs. 51.1

North America:
USD Fed Holds Open Board Meeting Basel III 9:30
USD Factory Orders 10:00

A sleepy and lackluster summer night of trade with high beta currencies drifting lower in Europe as equities sell off mildly and economic data suggests surprising deflation in the Eurozone. With RBA rate announcement the only major risk event on the calendar, currencies spent most of the night in relatively tight ranges with markets content to simply bide time ahead of key economic releases later this week.

In Australia the RBA maintained it dovish bias, stating that, “The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand,” as it kept open the prospect of further rate cuts.

The Australian monetary authorities also continued to jawbone the Aussie, noting that, “The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.”

The initial news reaction took the Aussie to a low of 9152 as traders sold the unit in response to RBA’s unrelenting dovishness, but the pair quickly found support at those levels and rebounded towards the 9200 figure. Despite RBA’s decidedly accommodative stance the central bank is unlikely to make a move on the interest front anytime soon unless the economic situation Down Under deteriorates markedly. The Aussie therefore, looks a sold out at these levels and if the pair can remain above it recent swing lows of 9100 it can stage a short covering rally towards 9300 as the week progresses.

Meanwhile in Europe the PPI data showed a surprising decline as wholesale costs dropped by -0.3% versus -0.2% eyed. This was the third consecutive month of contracting prices suggesting that demand remains very sluggish which is turn could provide ECB with more scope to ease. European monetary authorities however show little inclination towards further accommodation with Mario Draghi emphasising the limitations of monetary policy in his recent speeches. This Thursday ECB meeting therefore could prove to be a disappointment if the central bank remains passive.

In North America today the calendar is very quiet with all the key data coming out on the back half of the week, but one key report that traders may be watching is the light vehicles announcements that will come out during the day. If the pace of car sales proves strong at above the 15M annual run rate, currency traders may push USD/JPY through the key 100.00 barrier on enthusiasm over the strength of the US recovery.

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