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Talking Points:

• Aussie Dollar Yields Tepid Reaction to Status-Quo RBA Policy Announcement

• Euro Likely to Look Past German Figures Data as ECB Meeting Looms Large

• British Pound May Decline if UK PMI Weighs on BOE Rate Hike Speculation

The Australian Dollar edged higher as the RBA kept its benchmark interest rate unchanged at 2 percent, as expected. The move was relatively modest however, pushing prices toward highs recorded earlier in the session but failing to build substantive momentum thereafter. The currency scored initial gains following Australian Current Account and Chinese PMI data and corrected slightly lower amid pre-positioning before the RBA announcement crossed the wires.

The tepid response probably reflects the largely familiar tone of the policy statement accompanying the rate decision. Governor Glenn Stevens maintained that the Bank is in data-dependent mode going forward, repeating the now-familiar refrain that “the outlook for inflation may afford scope for further easing…should that be appropriate.”

Perhaps most interestingly, Stevens noted that “the pace of growth in dwelling prices has moderated” in the boom market of Sydney and Melbourne while remaining subdued elsewhere. He added that “supervisory measures are helping to contain risks that may arise from the housing market”. The buoyant housing market was an important reason to delay easing while macro-prudential efforts took hold. Signs that this may be happening could lower the bar for stimulus expansion in the months ahead.

Looking ahead, German Unemployment figures and the UK Manufacturing PMI report headline the economic calendar. The former data set seems unlikely to inspire a significant response from the Euro as traders look ahead to the ECB policy announcement due later in the week for substantive direction cues. The latter is forecast to show a slowdown in the pace of factory-sector activity. UK news-flow has deteriorated relative to consensus forecasts over the past month, opening the door for a downside surprise that may undercut BOE rate hike bets and weigh on the British Pound.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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