Australia: The Australian Dollar has opened slightly lower this morning after trading comfortably over USD 0.9900 yesterday.

A rise in Consumer Confidence in the US gave the USD a boost and the AUD felt the brunt of this.

The AUD also pared back yesterday's gains ahead of today's September Quarter CPI. A rise of 0.7% is expected in both the headline and underlying measures, and this would see annual underlying inflation at 2.5% yr on yr and headline CPI at 2.8% yr on yr.

It has been interesting to note how the USD has gained a stronger feeling to it over the last week. Long-end US yields have
risen following some improved data and a seeming scaling back of market expectations for the size of the Federal Reserve's QEII program.

LME copper briefly touched a new 27-month high on signs of strong demand. Zinc and aluminium were higher whilst nickel fell over 1%.

The feeling is the AUD will stay at these elevated levels in 2011 as the Reserve Bank seems likely to continue to raise interest rates as wage costs place pressure on inflation.

The official cash rate is being tipped to rise from the current level of 4.5% to as high as 6% by the end of 2011, with the RBA tipped to raise the cash rate at least once before Christmas.

By the end of next year, Australia's terms of trade was expected to fall as a greater global supply of resources caused commodity prices to correct.

The central banks of other advanced nations, including the US, would also start to lift interest rates which would diminish Australia's interest rate differential with other advanced economies and see the local currency fall off its highs.

Majors: USD strength saw EUR/USD open lower near 1.3850 as the ECB's Weber suggested "Germany's recovery is not yet fully self-sustaining".

USD/JPY rallied 1% yet GBP/USD held thanks to firm UK growth data. The US stock market was somewhat mixed with US Steel and
Kimberley-Clark releasing disappointing earnings.

The rise in consumer confidence to 50.2 helped US markets recover following the disappointing earnings numbers. UK GDP data assisted the GBP and gains were further extended when S&P announced it has revised its sovereign outlook on the UK bringing it back to stable and reaffirming the AAA rating (following the negative outlook
rating of May 2009).


Newsletter: Subscribe to receive this report daily