Bell FX Currency Outlook: The Australian Dollar fell to USD 1.0273, its lowest level in more than three months, after comments from European Central Bank (ECB) President Mario Draghi caused stock markets to decline.
Australia: Overnight, the ECB decided to keep the cash rate on hold at 0.75% with Mr Draghi indicating the ECB was monitoring the effect of the EUR's rise on inflation.
These comments caused a sting in stock markets on both sides of the Atlantic as well as "yield" currencies such as our AUD.
Essentially he was saying that if inflation becomes an issue, due to a high EUR, this could ultimately end up stifling growth. Locally though, there has been plenty going on this week in relation to the Reserve Bank's actions and comments.
Today, the RBA releases its quarterly Statement on Monetary Policy at 11:30 AEST and the Bank is likely to reiterate theuncertainty surrounding the domestic economic outlook, particularly surrounding the transition from mining investment-led growth to other sources of activity.
The Bank's near-term economic forecasts might be revised modestly but we do not expect wholesale changes given growth is already expected to be below trend and inflation in the 2-3% target band.
The AUD seems vulnerable. Technical support sits near 1.0250, and should this give way, the next level of support is around 1.0150. Watch specifically for the 1.0236 (October 23 low) level in amongst all this.
The release of China's inflation figures for January this afternoon is worth focusing on as we head into the weekend. The market is looking for the trade balance to narrow from US$31.6bn in Dec to $28.5bn in Jan, based on imports rising by 26% and exports up 18%. This would be give evidence of a moderate rebound in China.
All things considered, the AUD will consolidate for the moment with downside risk more likely than the other way.
Majors: ECB President Draghi delivered "marketmoving headlines". It is worth noting there has been little change in theECB's views on the euro zone economy over the past month.
The weakness in macro activity has extended into early 2013 and downside risks prevail. At its meeting, the Bank of England (BoE) also left policy unchanged, with the policy rate at 0.50% and the asset purchase target atGBP375bn.
BoE Governor-Designate Carney said that "the Bank will need to design, implement and ultimately exit from unconventional monetary policy measures in a manner that reinforces public confidence."
In contrast to its traditional communication rule when policy is maintained, the BoE released a statement accompanying today's 'no change' decision.
In the US, the Trade balance is due, the market looking for a slightly narrower deficit of $46bn.
Economic Calendar08 FEB AU RBA Statement on Monetary PolicyCH Jan CPICH Jan PPIUS Nov Trade BalanceFor latest pricing, ranges, visit www.bellpotter.com.au