Australian Dollar: The Australian Dollar opens 2 cents lower this morning as an agreement to raise the US Debt ceiling combined with a cautious RBA Monetary Policy statement yesterday spurs a sell-off of our local currency. Sitting at intraday highs of 1.10 yesterday morning, a decrease in building approvals was the first sign the Aussie was in for a rough day and it fell to 1.0970, where it held in the lead-up to the RBA rate decision.

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As widely expected the reserve bank left interest rates on hold at 4.75% however Governor Steven’s failed to give the bulls what they were looking for. The accompanying rhetoric addressed inflation concerns however put them in perspective against a lagging recovery in some sectors of the domestic economy as well as ongoing uncertainty off our shores.

With no hint of an interest rate rise until things improve the Australian dollar dropped sharply to 1.0920 and as the US debt agreement came closer to and eventually reached a conclusion, the pair drifted lower and lower to open today at 1.0775. On the economic docket we have Retail Sales and Trade Balance figures for June, which if positive may provide the Aussie with a bit of needed support.

We expect a range today of 1.0710 – 1.0830

New Zealand Dollar: A relief rally in the Greenback has put pressure on higher-yielding currencies over the past 24 hours and the New Zealand Dollar has fallen from recent and impressive highs. In the lead-up to US lawmaker’s signing an agreement the Kiwi hit a daily high of 0.8780 however has since traded heavily down to a current low of 0.8635.

As markets now begin to shift their attention back to the Euro Zone and its debt crisis further downside pressure could certainly come the Kiwi’s way; although domestically tomorrow’s unemployment rate might provide some support if better than expectations. On the crosses the Kiwi is still higher against the Aussie at 1.2477 (0.8015) however it has given some ground against the Sterling and opens today at 1.8840 (0.5308).

We expect a range today of 0.8580 – 0.8660

Great British Pound: After Manufacturing PMI on Monday indicated the sector had contracted in July, Construction PMI continued its expansion with a reading of 53.5. Although this did little to protect the Great British Pound against a rally in the Greenback as signatures were finally placed on a bill to raise the US debt ceiling. Falling from levels above 1.6320, Cable reached a low near 1.6220 before recovering slightly to open today at 1.6280.

With its antipodean trading partners coming under significant selling pressure, Sterling is higher against both the Aussie and the Kiwi trading this morning at 1.5110 and 1.8840 respectively. Investors will now be turning their attention to tomorrow’s Bank of England Monetary Policy Decision; where many are wondering if the recent contraction of the Manufacturing sector will prompt officials to increase economic stimulus.

We expect a range today of 1.5050 – 1.5190

Majors: After many weeks of to-ing and fro-ing between the Democrats and the Republicans, US lawmakers have finally reached an agreement to raise the nation’s debt ceiling; with President Obama signing the bill into law only hours ago. Markets have witnessed a rally in the Greenback against its riskier counter-parties at least with the Euro falling from 1.4275 to a low of 1.4150 and the Pound Sterling and Canadian Dollar also losing ground.

Conversely, the safe-haven currencies have continued their climb against the troubled US Dollar as investors now express concern that the debt agreement will weigh heavily on the still fragile recovery of the US economy. Where it is laden with budget cuts, 2.4 trillion to be wiped off the budget deficit over ten years, there is little in the way of revenue-raising to assist the process.

The Swiss Franc has forged yet new highs to 0.7607 solidifying what has been a 24% gain in the currency over the last 12mths. The Japanese Yen also continued to push higher, reaching 76.50 during the North American session but opening slightly softer this morning at 77.10.

Data releases

AUD: AIG Services Index; Retail Sales m/m; Trade Balance

NZD: No data due for release

JPY: No data due for release

GBP: Services PMI

EUR: Final Services PMI

USD: ADP Non-Farm Employment Change; ISM Non-Manufacturing PMI; Factory Orders m/m

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