Australia: The AUD hit 1.1075 early and has since fallen back below 1.1000 and is currently trading at 1.0995. Its peak of 1.1081 on Wednesday night was the highest level since the fixed exchange rate era ended with the float in December 1983 and the writer was in first year Economics at University ie) long time ago.

[Kick off your trading day with our newsletter]

The FX market is in a genuine tug of war as far as developments in the US and Europe. Concerns regarding Europe remain high with the focus on Italy after large rises in yields at the government bond auction. The US remains truly fascinating.

In Australia, there is huge debate on interest rates thanks to Wednesday’s CPI data that “gobsmacked” the markets and the AUD. We feel that more time has to be taken in seeing what impact natural disasters continue to have on inflation. The RBA has raised rates once in 15 months but that needs to be in context with Australian interest rates among the highest in the developed world. Augusts’ meeting will be very important now.

The US debt situation probably remains the only real issue between now and the August RBA meeting. With only five days to go before an August 2 deadline when the US Treasury says it will no longer be able to borrow funds to pay its bills, stock markets remained nervous that a fragile economic recovery after the 2008 global financial crisis could be at risk.

Locally, the RP Data-Rismark house price series for June is released along with RBA private sector credit for June.

Majors: The US Dollar strengthened slightly which weighed on commodity prices and commodity currencies, as US equities faded late in the day. Later tonight (8am AEST), The House of Representatives is to vote on a two-step plan forged by Speaker John Boehner to reduce the US deficit which would cut government spending by US$917bn over 10 years. It would require two separate votes to raise the debt ceiling before next year’s Presidential election.

Senate Majority leader Harry Reid has indicated the plan will be defeated in the Senate but White House Press Secretary Jay Carney said that President Obama’s administration remains optimistic that a debt agreement can be reached by 2 August.

Japanese employment, CPI and industrial production for June is released tonight, in Europe there is June CPI, while in the US, in addition to the debt ceiling situation, we have the first estimate of Q2 US GDP, consumer confidence and the Chicago and Milwaukee’s PMI.
Economic Calendar
Aust Private Sector Credit
Aust RPData House Prices
US GDP QoQ
US Chicago Purchasing Managers Index