Bell FX Currency Outlook The Australian Dollar has fallen to a fresh three-year low as strong US economic data raised the possibility the Federal Reserve will start winding down its economic stimulus program soon.

Australia: In overnight trade the currency dropped to just above 0.8900, very close to the 0.8902 level was reached in September 2010.

The US ISM manufacturing report for July came in much stronger than expected and this has raised the possibility the US Federal Reserve could start tapering its $US85 billion-a-month bond-purchase program as early as September, which the market believes will be USD positive and AUD negative.

So, the AUD continues to be very sold for two main reasons which are firstly, the US policy is going to become a little bit more
restrictive and secondly, there's a real view the Reserve Bank of Australia is going to cut the cash rate next week. While AUD performed better overnight, it is still too early to call a floor.

Fundamental factors remain opposed to strength and, accordingly, trading desks are reporting substantial interest to sell on any rally above 0.9000 from a wide array of counterparties.

In Australia today, the Federal Government is expected to release its updated economic statement late this morning.Majors: In financial markets, the biggest translation of the sell-off in US Treasuries came via USD/JPY, which rallied from ahead of 97.50 to above 99.50 in fairly swift fashion.

Elsewhere the EUR and GBP were marginally weaker following meetings of the ECB and Bank of England. The market will be totally fixated on payrolls tonight with the market expecting growth of 185K in payrolls together with an unemployment rate of 7.5%, down from 7.6%.

Last night's employment component of the ISM Manufacturing report and the continued trend down in jobless claims would have done
nothing other than to bolster that expectation or conceivably something larger. The earlier ADP report was in a very similar vein pointing to another month of strong employment growth. We watch with baited breath on this important release.
Economic Calendar
2 AUG AU PPI QoQ/MoM 2Q
EU Eurizone PPI Jun
US Change in Nonfarm Payroll Jul
US Unemployment rate Jul

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