RBA On Hold
The RBA kept the cash rate steady at 3.5% overnight in line with consensus, noting that “material easing” had already been delivered by earlier cuts. There was little FX reaction to the policy announcement itself but, earlier, Australian building approvals hit a 30-year high and this kept AUDUSD supported throughout the overnight session. USDJPY remains the market’s preferred vehicle for expressing a view on Fed QE3, as the reaction to yesterday’s weak US manufacturing ISM showed. The headline reading broke into the ‘contraction’ zone for the first time in three years, plunging to 49.7 in June from 53.5 in May. The new orders index fell in June to 47.8 from 60.1 the previous month, and the export orders reading also dropped, slipping to 47.5 from 53.5 in May. The better than expected 0.9% m/m rise in May construction spending offered some consolation, but that was not enough to prevent USDJPY from testing the downside. The euro steadied overnight after yesterday being undermined by revelations that Finland and the Netherlands both disapprove of ESM bond buying in the secondary markets – serving a reminder of the considerable post-Summit hurdles still to be cleared. Our 1m (1.24) and 3m (1.20) EURUSD targets remain in place. Yesterday, the June manufacturing PMIs for Germany, France and Italy did not serve up any nasty surprises, but they all remained mired below the 50 threshold at 45.0, 45.2 and 44.6 respectively. The corresponding PMIs in the UK and Switzerland, however, beat expectations. Equity markets in Europe managed to post gains again yesterday, as the focus is squarely on the upcoming ECB meeting, amid growing expectations that a rate cut of as much as 50bp is in the pipeline.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank