Australia: Weaker retail sales and housing data released during our local session yesterday saw the AUD fall from its highs, unable to push through USD1.0800.

Retail sales were disappointing, posting a 0.6% fall in sales for the month of May, compared to market expectations of a gain of 0.3%. Building approvals for the period were also weaker, falling 7.9%, a very large loss compared to the expectations of only a small decrease of 0.5%.

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Both of these results have added to the argument that the RBA will keep interest rates on hold when they meet to make its interest rate decision today.

While the RBA continues to state that we are in a state of medium term tightening, their last board minutes revealed that they are in no rush to move forward with this bias.

Continued uncertainty around the global economy, and the recent lacklustre data locally will likely see the RBA wait until further top tier is released. Later this month Australia’s Q2 CPI data is due and many are expecting that the result will not force the RBA into action.

Some institutions have pushed back their predictions for an interest rate hike to as late as February 2012 (previously August 2011). It is expected that the AUD will remain fairly steady until the RBA’s release at 2:30pm AEST today.

Majors: With the US markets closed overnight, many of the attention returned to Greece. Standard and Poor’s warned that France’s debt
rollover plan for Greece would ‘likely’ result in a default.

While many would think this would rattle the markets, it did little to negate the positive momentum from the funding agreement last week.

This as well as the expectation that the European Central Bank will increase interest rates later this week has made it hard for the EUR to fall significantly against the USD.

It’s likely that attention will return to the US later this week as some top tier data is released; including the June payrolls. With the quantitative easing now over, investors will look for an end to the recent soft data out of the region, as a sign that the economy is able to function on its own merits.

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