AUD in focus ahead of monetary policy meeting minutes

With US markets shut for the Presidents Day holiday, most of the overnight leads were from the European session. 

Risk remained fairly well underpinned by good credit growth numbers out of China. AUD/USD climbed to 0.907, which saw it retest last week’s and mid-January’s highs. This region saw some profit taking kick in and the pair drifted back into 0.903.

Perhaps heading into the monetary policy meeting minutes at 11.30 AEDT we have seen some traders exercise caution. While it is clear the RBA has switched to a neutral bias, a weak jobs market will have the RBA concerned and perhaps warrants some caution on the long side of the trade. However, whether we can get any more clarity beyond what we already received from Friday’s statement of monetary policy remains questionable.

The line ‘on present indications, the most prudent course is likely to be a period of stability in interest rates’ will hopefully be explored further on a time-frame basis. We’ve already got significant information about expectations of unemployment, inflation and growth; an accommodative stance is expected to be maintained for a while. Should the release not bring any major surprises, then I would expect AUD/USD to resume drifting higher. A monster result from mining giant BHP Billiton could also give a positive kicker for the AUD.

No change expected from the BoJ

The yen will remain in focus today with the BoJ decision due out. USD/JPY enjoyed a strong bounce off 101.40 and is just knocking on 102 early in Asia. Japan’s industrial production was revised lower yesterday to 0.9% (from 1.1%) and this saw yen weakness resume. No change is expected from the BoJ today, but disappointing GDP and industrial production figures will be a concern for investors. The sales tax hike is also set to kick in in April and perhaps we might hear some comments around this.

Cable stutters at 1.68

GBP/USD traded at a high of 1.682 encouraged by a jump in house prices yesterday. The pair has since declined on the back of some comments by the BoE’s Miles. Miles said a rate hike is the last line of defence if the housing market overheats. This suggested a rate hike is still quite far away and resulted in some profit taking in sterling. GBP/USD is just holding on to 1.67 heading into CPI data at 20.30 AEDT. Inflation is expected to remain steady at 2%, but some analysts are concerned we might see a slight easing in headline inflation.

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