In a shortened trading day ahead of Independence Day, U.S markets gained overnight driven by solid reports on factory orders and auto sales. U.S factory orders outpaced expectations increasing 0.7 percent in May from a previous decline of 0.7 percent. Economist’s consensus estimates showed expectations of a moderate 0.1 percent increase. Still, with yesterday’s ISM manufacturing print for June still fresh in the minds of Investors, there remains a general reluctance to carry markets higher.
In a fairly subdued evening in terms of volatility, risk currencies remained buoyant driven by positive gains across equity markets. After easing to lows of $US1.2558, the Euro was able to pare losses with the pair making a break to the upside of 1.26-figure and consolidating gains around current levels of $US1.2610. The Aussie dollar traded in a tight 50 pip range overnight and currently remains supported at 102.78 US cents.
As widely anticipated, the RBA held the cash rate at 3.5 percent yesterday with the ensuing statement offering little in the way of new information to prompt a material shift in policy expectations. While acknowledging “signs of further progress” from the Euro region, the statement displays a cautious undertone noting the potential for further adverse shocks from the region. The statement shows the board remains comfortable with the inflation outlook which is expected to be consistent with their target range. While the RBA may have the ample breathing space to further ease monetary policy, the full impact of previous easing initiatives has yet to filter through the economy suggesting Stevens will maintain a steady course in the near-term to further assess both local and international conditions. With market participants sufficiently pricing-in the RBA will remain on hold, the period to follow saw more noise for the Australian dollar rather than any discernible direction.
Key economic data today includes retail sales, trade balance and HSBC China services PMI.