Aussie Advances as RBA Content With Policy

• Aussie dollar breaks $0.95 for the first time since November, upside bias remains;
• UK reports fastest expansion in manufacturing activity in seven months;
• Eurozone unemployment rate remain ‘uncomfortably’ high;
• US manufacturing data reads generally well and in line with expectations.

In a busy session for the Aussie dollar, the day began with a highly anticipated final manufacturing number from China. Data which showed an expanding manufacturing industry and recorded the highest level in 6 months did little move the Aussie dollar as an expansion was priced in after last week’s preliminary reading. Markets were traded carefully ahead of the RBA’s rate decision, not with the expectation of a change in monetary policy but for any indication from the accompanying statement as to what lies ahead fir the local economy. As expected, interest rates remain on hold at 2.5% with no signs of tightened monetary policy in the near future. Shrugging off Monday’s inflation report which showed inflation at the top end of the RBA’s 2-3% target, the Central Bank reaffirmed that inflation should remain with target over the next two years. With a lack of fresh dovish rhetoric, the market was pleased with the outcome and played on the positives of the statement, the Aussie breaking $0.95 throughout the overnight session amid a weaker greenback.

With few economic releases from the UK yesterday, the upside trajectory continued, encouraged by manufacturing data which showed an expansion at the fastest pace in seven months. As the UK ended one of the best quarters for the manufacturing sector seen in two decades, Sterling approached a 6-year high against the greenback as data has inevitably confirmed the likelihood of an interest rate hike. However, data from the European neighbours was not so encouraging. A string of disappointing releases included a slowdown in manufacturing activity in both Germany and Italy, a rise in Italian unemployment and uncomfortably high unemployment of 11.6% throughout the Eurozone combined. Whilst the Euro consolidated recent gains against the greenback, the losses were limited as US data also disappointed. Tomorrow’s ECB meeting is unlikely to bring any surprises after last month’s announcements as the ECB requires more time to assess recent policy changes.

Despite manufacturing data showed that activity is largely in line with expectations, it wasn’t quite enough to spur demand for the greenback. Encouraging Chinese manufacturing data played some part in greenback support against the Japanese Yen, but more attributable to speculation that the Bank of Japan will ease monetary policy further after the Tankan report identified areas of weakness in the Japanese economy. Downside bias continues for the greenback as we approach tomorrow’s premature non-farm payrolls data where we can expect to the US economy added over 200k jobs in June.

[B]Tom Williams
Sales Trader[/B]

The AUDUSD could not break the 0.9500 level and gives us a good bounce to the downside from that level.