Australia keep interest rates at 2%

Today's Highlights

• Australia keep interest rates at 2%

• Chinese manufacturing slows

• UK manufacturing to follow suit?

FX Market Overview

The Australian Dollar gained a hint of appreciation as the Reserve Bank of Australia kept its benchmark interest rate at 2%. The Aussie’s move was relatively modest and has failed to build much momentum so far. The currency made its initial gains following the Australian Current Account and Chinese PMI data, before correcting slightly lower just before the RBA announcement was released.

However, the Aussie Dollar’s timid response is a reflection of the policy statement which accompanied the rate announcement. Governor Glenn Stevens maintained that the Bank is in data-dependent mode, repeating the accustomed rhetoric that “the outlook for inflation may afford scope for further easing, should that be appropriate.”

Perhaps most interestingly the buoyant housing market was an important reason to delay monetary easing for Australia. Signs of a slowing housing market down under could lower the bar for further rate cuts in the months to come.

On the data front Australia's current account deficit narrowed to A$-18.1 billion in the third quarter and building approvals rose 3.9% in the month of October. The official China PMI manufacturing number dropped to an contractionary 49.6 in November, below expectation of 49.9. That's also the lowest level in more than three years, the lowest since August 2012. However the official PMI non-manufacturing rose to 53.6. The widening disparity between the manufacturing and non-manufacturing sectors of the Chinese economy will surely be starting to cause the Chinese officials a headache with some analysts expecting the divergence to extend at least halfway into 2016.

The Swiss Franc has come under some pressure in the early hours as Switzerland’s GDP for the 3rd quarter disappointed with no growth at all, expectations were in the region of 0.2%.

Later this morning Germany, and the Eurozone as a whole, release their employment numbers which should be broadly positive but both could be somewhat overlooked as the crucial European Central Bank meeting on Thursday looms closer. So expect the euro to remain within its current ranges until then.

As far as the pound is concerned the UK Manufacturing PMI report headlines the economic calendar. It’s expected to be an expansionary figure at 53.6 down from the last reading of 55.5 due to a slowdown in the pace of factory-sector activity. UK news has declined relative to expectations over the past month, opening the door for a downside surprise that may undercut bets on rate hikes from the Bank of England and weigh on the British Pound.

Q:Two coins make up 15 cents. What are the two coins if one is not a nickel?

A: One is a nickel, the other is a dime which is not a nickel.