Aussie Lower On RBA, Euro's Pullback Continues

Global equities are weighed down by political uncertainties in Europe. DOW dropped nearly 130pts overnight while S&P 500 also dropped -17.5 pts to close below 1500 level again at 1495.71. Asian stocks followed with Nikkei dropped -213 pts while Hong Kong HSI dropped over -400 pts. in the currency markets, Euro's broad based pull back continues with EUR/USD trading back below 1.35 level while EUR/JPY is below 125. AUD/USD weakened ahead of RBA rate decision earlier today but stabilized quickly and is still engaging in sideway consolidations.

The RBA left the cash rate unchanged at 3%. Yet, policymakers indicated in the accompanying statement that possibility remained for further rate cut as inflation was contained by sluggish job market. The statement was dovish, reiterating the view that the mining sector has almost peaked. The RBA's outlook on growth showed little change from the December statement, noting that 'global growth is forecast to be a little below average for a time' but risks around this central scenario 'appear to have abated.'

A Spanish newspaper reported last week that Prime Minister Mariano Rajoy his party members had received illegal payments from a fund paid for by construction companies. Rajoy had faced opposition calls for resignation. The Prime Minister has denied the allegations and he gained support from Germany's Chancellor Merkel who stated after a meeting that she was "convinced that the Spanish government and Mariano Rajoy as Prime Minister can solve this task, and Germany will help him with all our strength".

In Italy, investors worried about resurgence of Silvio Berlusconi. His opponents accused him of using "dangerous electoral propaganda" as he pledged to ease the tax burden on Italian taxpayers if his coalition wins elections in February 24-25. The former Prime Minister stated that he would serve as the economy minister if his party wins. At a speech to the supporters of his People of Freedom party, he said that "the tax caused Italian families worry, anxiety, fear of the future" and he would ease such burden upon victory.

On the data front, UK BRC sales monitor rose 1.9% yoy in January. Australian trade deficit came in narrower than expected at AUD -0.43b in December. House price index rose much more than expected by 1.6% qoq in Q4. Swiss trade surplus came in narrower than expected at CHF 1.0b in December. UK PMI services is the main focus in European session. Eurozone will release retail sales. US will release ISM non-manufacturing composite.