Bell FX Currency Outlook: The Australian Dollar tumbled more a one cent yesterday after remarks by RBA Governor Stevens
on the inflation outlook for Australia and the scope for further reductions in the cash rate.

Australia: The market reacted to the comments quickly yesterday afternoon as the RBA chief said there was further scope to reduce our local 2.75% cash rate due to a lower inflation outlook.

Stevens also mentioned that the boom in mining investment was over and that the reduction in activity could be significant although higher output from recent mine expansions could benefit Australia in the long run.

Additional downward pressure was placed on the AUD as Stevens said the lower exchange rate made economic sense. Local building approval data released yesterday was weaker than expected but still higher than a year ago. Just about every analyst now expects the RBA to lower the cash rate next Tuesday afternoon by another 25 bps to 2.50%.

Locally today we will see some figures for private sector credit growth. We expect the AUD could be quite volatile in the next several days not just because of local factors but also due to the release of US GDP data for Q2 tonight and the results of the concluding 2 day US FOMC meeting tonight and other central bank meetings in Europe and the UK.

Majors. In the US overnight we saw the release of S&P Case Shiller index of house prices for 20 of the largest US cities which rose in May by 1.1% which was slightly lower than expectations of a rise of 1.4%. This index is up by 12.2% in the last year which is the best result in the last seven years.

The Conference Board's index on consumer confidence fell to 80.3 from 82.1 which were contrary to the index figures released at the end of last week by the University of Michigan.

Equity markets in the US were flat while European indices managed a small gain as more earning reports came in. Markets are eagerly awaiting the statement tonight from the US Fed which may give a further indication on the likely path of the stimulus
package engineered by the US Fed.

Most analysts still believe there will be no tapering until September. Interestingly, there will be no press conference tonight, just a statement.

Expectations for the prelim read on US GDP for Q2 vary between 0.5% and 1%. In addition, we will see the ADP employment report figures which are always interesting since the non-farm payrolls will be released two days later on our Friday night.

Tomorrow the ECB and the Bank of England meet as well although the markets are not expecting any significant change in their respective policies.
Economic Calendar
31 JULY AU Private Sector Credit Jun
JN Manufacturing PMI
US Federal Reserve FOMC Meeting
US GDP Q2, FOMC Rate Decision

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