Bell FX Currency Outlook: The RBA delivered probably one of the most widely foreshadowed interest rate cuts yesterday afternoon as the cash rate fell to 2.50% but removed their easing bias which saw the AUD appreciate after the announcement.

Australia: With the cash rate falling to levels not seen since 1959, the AUD traded almost a half cent higher after the RBA's action as their accompanying statement was closely scrutinised. Their statement did not contain the previous language of "an easing bias" on the future direction of interest rate policy and most analysts took this as evidence that any further reductions would be purely data dependent.

The AUD appreciated as the market lowered its forecast of another interest rate reduction in the next several months. This is the second time the RBA has acted during an election cycle after they raised the cash rate during the 2007 federal election when the Coalition was last in power.

Three of the four major Australian banks passed along the rate cut in full with Westpac reducing their mortgage rates by 28 bps. Also yesterday ANZ job ads data fell for the fifth month in a row and now stands 8% lower than they were in February.

Tomorrow we will see the job data for July where most are predicting a rise of 0.1% in our local unemployment to 5.8%. Later today we will see some figures on the AiG construction index and home loans and investment activity. Some analysts are now predicting the AUD may trade higher in the near future as the prospect of further local interest rate cuts abate.

Majors: Overnight US trade figures improved to their best level in 3 ½ years as the trade deficit narrowed to US$34.2bn which was down 22.4% and exports hit a record high. This raised the likely prospect that Q2 GDP will be better than anticipated.

The recent increase of 1.7% in Q2 GDP was a surprise and this better trade figure has raised the prospect the next figure could be higher than 2.5%.

The parade of US Federal Reserve speakers continued overnight with Chicago Fed President Charles Evans saying he would not rule out a September taper of US bond purchases by the Fed. US equity markets were off from their recent highs.

In Europe, German factory orders were better than anticipated and UK industrial production also surprised on the upside. Later tonight the Bank of England will announce their inflation report.
Economic Calendar
7 AUG AU AiG Performance of Construction Index Jul
GE Industrial Production Jun
UK Bank of England Infation Report
US Consumer Credit Jun

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