Bell FX Currency Outlook: The Australian Dollar has held steady following comments from Federal Reserve Chairman Ben Bernanke who noted, amongst other things, the Federal Reserve is watching developments in Europe closely. Today the focus in Asia is on the outcome of the RBA meeting.

Australia: Better than expected US data and solid European equity markets saw the EUR outperform most currencies. A bounce in the US ISM survey saw a modest rebound in equity markets overnight, while bond yields were mixed.

Peripheral European bond yields were marginally lower but German, French and UK bond yields were slightly higher and US Treasuries finished unchanged.

Euro zone unemployment has risen to a new all-time high of 11.4%. Youth unemployment is a whopping 22.8% and very sadly over 50% in Greece and Spain where national rates are 25%. In Australia today, the RBA Board will decide on monetary policy, with 9 out of 28 economists expecting a 25bps cut to 3.25%.

Those seeking lower interest rates believe this is needed due to lower commodity prices and weaker than expected growth in China together with a
persistently high AUD. The declining terms of trade will weigh on Australia's national income growth, and likely have adverse flow-on effects on unemployment.

The other 19 economists seem to mostly agree on a rate cut by year end with today's statement expected to signal that the door remains open to easing. The RBA last cut the cash rate in June by 25bps following a 50bp cent cut in May.

Majors: The US Dollar was relatively unchanged on the back of Bernanke's remarks and data releases. Bernanke has been speaking regularly with pretty much the same theme which is Fed's pledge to keep stimulus at record levels even after the recovery gathers strength, for a considerable period after.

The ISM manufacturing report in September was positive and lent weight to the US economy showing signs of resilience at the end of the northern summer. The reading (over time) is consistent with GDP growth of 3% which is double the 1.3% rate for Q2 reported last week.

The employment component was better too. Yesterday, the official China PMI manufacturing data showed a modest rebound in September. China continues its week-long public holiday period today and it is a very quiet night as far as data is concerned.
Economic Calendar
02 OCT AU RBA Cash Rate Announcement
AU RP Data Riskmark House
UK PMI Construction
EU Euro-zone PPI