Bell FX, Rivkin Securities Currency Outlook: The Aussie dollar recorded gains overnight until early morning, but its strength will be tested anew with the release of China's manufacturing data later today.

Australia. The AUD has dropped back slightly to USD103.70 this morning, still around the highest levels in two months, according to Bell FX foreign exchange dealer Ms Rebecca Kelly.

"Australian dollar pushed higher as share markets in the US rallied, with the S&P 500 hitting a new record high," Ms Kelly adds.

China's manufacturing data to be released at 11:00 a.m. AEST will be a determining factor whether the Aussie dollar strengthens further, according to analyses from Bell FX and Rivkin Securities.

"Recent strength of the AUD has largely stemmed from broad U.S. dollar weakness rather than improving local economic fundamentals. Any upside surprise in Chinese PMI data today would likely send the Australian dollar back above US$1.04 amid stronger commodity prices," notes Mr. Timothy Radford, global analyst at Radford Securities Ltd.

Ms Kelly adds that the weaker manufacturing data reduced expectations the US Federal Reserve would begin to wind back its stimulus efforts in the near term.

Majors. A relatively quiet session is expected from Europe tonight as businesses wind down with the May holidays.

Bell FX has noted that there were significant moves in currency markets overnight with the euro rising sharply against the US dollar.

There were reports that month-end flows contributed to this move but also softer economic data from the region leading to bets that the European Central Bank will cut interest rates on Thursday in order to support economic growth.

US and European equities ended mixed while commodities led by oil and metals fell.

Mr. Radford of Rivkin Securities notes that spot gold traded in a tight range Tuesday as traders prepare for the Federal Reserve FOMC meeting Thursday morning (Wednesday afternoon NY time) Sydney time. Spot gold inched 87 cents, or 0.06 percent higher, to settle at 1,476.71.

"Our expectation is for the Federal Reserve to maintain current stimulus measures indefinitely. Unemployment levels are still too high while inflation rates remain too low for the Fed to consider reducing the US$85 billion per month stimulus program," says Mr. Radford.

U.S home prices rose in February at their fastest rate in almost seven years. The data reinforces the view that rising home prices will assist in spending, helping to counter the hit to economic growth from tax hikes and government spending cuts.

Economic Calendar
01 MAY AU AiG Performance of Mfg Index Apr
CH Manufacturing PMI Apr
US ISM Manufacturing Apr
US FOMC Rate Decision May