OPENING COMMENT
There have been a lot of interesting developments over the past few hours that are having some significant impact on the global macro scene. First off, Australia has gone ahead and officially raised rates (+.25bps to 3.25%) for the first time since the onset of the financial markets crisis, which now potentially signals to the rest of the world that the global economy is recovering and we have shifted back into a monetary tightening cycle. Treasurer Swan has accompanied the monetary policy decision with some hawkish comments after saying that there may be more rate rises to come. This has put the USD back under pressure across the board, with the Aussie leading the way. There are some analysts however that contend the hike today is too aggressive and the Australian economy will suffer from a central bank that is betting too heavily on a near-term global recovery. There is the risk that the move by the RBA could backfire in a double dip type scenario, or if Australian data itself starts to deteriorate. While it is only one release, this morning’s trade data has come in nearly doubly worse than expectation, and could strike a nerve with some investors.
Elsewhere, the USD has also come under pressure on the back of an article from the UK Independent entitled the "Demise of the Dollar" which talks of Iran’s intent to shift FX reserves into Euros, and the Gulf state’s secret plan with Russian, Japan, China and France to end dollar dealings for oil over the next several years. The buck hasn’t even been able to find bids against the Yen, with Japan’s Fujii saying that it was undesirable for governments to pursue weak currency policies. Elsewhere, the Latvian states are back in the headlines with some negative attention after an article in the Telegraph reported of secret meetings between Sweden’s finance minister with major Swedish banks on the unraveling of political order in the Eastern European economy. Looking ahead, Swiss CPI (0.1% expected) is due at 7:15GMT, followed by UK Halifax house prices (0.6% expected) at 8:00GMT. At 8:30GMT things are capped off in Europe with the release of UK industrial production (0.1% expected). US equity futures are mixed, while commodities are slightly bid.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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