Australia: As always in the last three years, there are a huge amount of considerations in looking at our Dollar and considering how high can it go and how long will it be this high? Some analysts are calling USD 1.7000 to USD 2.000 in the next 18 months.

We find that hard to fathom, especially because at some stage, a couple of the key drivers for the AUD’s ascendancy will change. Interest rate differentials and the growth rates in China and India are what we refer to. Minutes from the April 26-27 FOMC meeting are the first sign since the GFC of the strategy of exiting the US expansionary monetary policy, which has so contributed to the fall in the USD. Equally of interest, a slowing growth in Asia is having an impact as policy makers look to dampen inflation.

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Locally, today we have average weekly ordinary time earnings data released which is typically not a big deal, as opposed to its distant cousin, the wage price index (WPI), which was released yesterday, and is the market’s preference for analysing wage inflation. Yesterday’s release of the WPI showed an unexpected deceleration in quarterly wage inflation to 0.8% (March was 1.1%) and added to the recent run of weaker Australian economic data such as employment, housing finance and consumer sentiment. One would suggest in light of this softer data and the very high A$, tightening of interest rates is
hardly urgent…
Majors: As mentioned above, the US Federal Reserve's Monetary Policy Committee released minutes for its April 27 meeting last night and this was a significant focus for currency traders during the offshore session. According
to the minutes, participants "generally anticipated that the higher level of overall inflation would be transitory".

While there had been "significant increases" in energy and other commodity prices that had boosted overall inflation, FOMC members expected price increases would ease once commodity prices stabilised. Bank of England minutes reveal no change to the voting pattern.

The EUR situation remains pretty much unchanged with pressure on Greece to solve their crisis. US equities rallied and US Treasuries sold off as the FOMC outlined its thoughts. More interesting times lie ahead for all of us in 2011 that’s for sure.

Economic Calendar
AU Average Weekly Earnings Fed Qtr
UK Retail Sales Apr
US Existing Home Sales Apr
US Initial Jobless Claims 1-May

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