Australia: This morning, the Australian Dollar was trading at USD 1.0780, which is 3 US cents below levels seen only last Thursday evening. It’s descent has been steady and commenced following the RBA announced “no change” to the official Cash Rate of 4.75% in Australia.

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RBA Governor Stevens said while the June quarter inflation figures were high, it (inflation) should stay in the 2 to 3% target range for the rest of the year. Hooray said most market watchers! In their statement, the RBA said it remains concerned about the medium-term outlook for inflation and it “considered whether the recent information warranted further policy tightening”, a reference to the abovementioned CPI data. The “acute sense of uncertainty in global financial markets over recent weeks” meant they swayed to remaining on hold. Debate rages if the next move is up or down. The focus for the Australian market today is the release of June retail sales figures and international trade data. Retail sales are expected to be flat while the international trade surplus is expected to increase on the back of strong export growth.

Majors: The US Dollar received a boost following the US debt deal. The strength in the USD overnight and the movement back towards it as a safe haven trade was in stark contrast to what we have seen in recent weeks. The debt deal saw the US Senate pass legislation to raise the debt ceiling by 74 votes to 26.

President Obama has signed it into law. Yesterday the House of Representatives voted 269-161 to raise the US debt limit by at least US$2.1tio and cut federal spending by US$2.5tio over the next decade. The problem now is debt deal itself is creating fears for the economic outlook, as the deal requires a deep pullback in government spending at a time when the economy remains soft.

Stock markets closed significantly lower overnight. The personal spending data for June showed a 0.2% fall (median +0.1%), the first fall in almost two years, while the savings rate rose to 5.4% from 5.0%. Coming after the weak ISM manufacturing data on Monday, is has escalated fears that the US economic recovery is losing momentum. Offshore, the US ADP employment data are released tonight, while services PMI’s are due in the US, Europe, UK, China and Australia.

Economic Calendar
AU Retail Sales JUN
AU Trade Balance JUN
CH China Non-manufacturing PMI JUL
US Factory Orders JUN

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