Australia: With a holiday in the US overnight, the AUD has followed the remaining offshore equity markets and weakened, with further downside likely today as our markets follow on from yesterday’s lead. Currently it looks as though the AUD will push down through USD1.0500 this morning prior to our equity market open.

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In Europe overnight Germany’s DAX was down 5.3% and the FTSE 100 was lower at 3.6% as sovereign debt issues returned to the forefront of news. The large amount of data due for release in Australia continues today as the RBA announces its decision on interest rates. It’s widely expected that the rate will remain at 4.75%, but the accompanying statement will be of interest as investors look for mention of inflationary pressures and the decreasing growth estimates. In recent weeks speeches by RBA officials have re-affirmed their moderately tightening basis; therefore any change to this stance in the statement today will see the AUD weaken as markets price in a possible rate cut.

Also due out today at 11:30am AEST is the housing finance data for July and the balance of payments for the second quarter. While the housing finance data is expected to increase slightly, it will be a long while before the sector fully recovers as weak housing market sentiment continues to contain any serious growth prospects.

Majors: As mentioned above with the US Labour Day holiday keeping their markets closed, the attention was back on Europe and their continuing sovereign debt problems. This saw the EUR/USD weaken, currently trading at EUR1.4070, but could test EUR1.4000 tonight if their issues continues to dominate the headlines. Markets are concerned over the state of the Italian finances, and also that Greece will fail to meet its budget deficit targets after talks broke down on Friday between Greek officials and visiting international experts. Investors will be looking forward to Thursday’s European Central Bank meeting where it will deliver its interest rate decision.

Markets are not expecting a change, but many believe ECB president Trichet will be more dovish in the accompanying statement. The GBP also suffered large losses overnight after data showed that the UK’s dominant services sector posted its sharpest slowdown in a decade. Adding to this was the news that Goldman Sachs is calling on the Banks of England to engage in another round of asset purchases saying it doesn’t expect a UK interest rate hike until 2013.

Economic Calendar
6 SEPT Aust Net exports
Aust Current Account Balance 2Q
Aust RBA Cash Target
Aust Home Loans