The Aussie dollar followed the Euro’s lead with a mild downturn early in European trade reversing as the session drew to a close. with the AUDUSD pair forging a new 4 ½ month high just shy of 106 US cents. Nevertheless, we are seeing healthy levels of consolidation across the risk spectrum including the Aussie dollar, with little in the way of major directives to spark new capital flows.
Key to the Aussie dollar’s fortunes today will be the RBA policy decision at 2.30 AEST, which is widely expected to official interest rates remain on hold at 3.5 percent. Despite the persistent threat of ‘Euro-geddon’, on balance local conditions have been supportive, with a recent string of better-than-expected economic feedback likely to see Stevens and Co hold the cash rate steady, and maintain their ‘glass half full’ stance. Last week’s data showed promising signs of a housing recovery with new home sales, building approvals, and house prices outpacing expectations, while retail sales activity also rose beyond expectations. While it’s true subdued inflationary pressures may provide ample breathing space, barring an abrupt south-bound shift in global conditions, it’s unlikely the board will take rates deeper into accommodative territory in the near-term. Yesterdays TD Securities inflation gauge confirmed price pressures remain subdued with a rise of 0.2 percent in July, despite the introduction of the carbon tax. The annual rate of inflation is at 1.5 percent according to the release which places the RBA in a comfortable position to further relax policy if required. Less-than-inspiring local employment conditions remain an exception to the overall buoyancy seen from other macro releases, with June’s statistics showing losses of 27,000 jobs with the official unemployment rate ticking higher to 5.2 percent. This week’s employment report is expected to see the Australian economy create 10,000 new jobs with the official unemployment rate to edge higher once again from 5.2 to 5.3 percent.
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