Aussie Mildly Higher After RBA On Hold

The Aussie is mildly higher after the RBA left rates unchanged at 2.5%, as widely expected. The accompanying statement was largely unchanged from the August one, when the RBA lowered rates by 25 bps to 2.50%. One notable difference was that the RBA acknowledged recent volatility in the financial markets on a reassessment of outlook in US monetary policy, "Australian institutions have ample access to funding markets." Regarding the economy, the RBA continues to expect "reasonable prospects of a pick-up next year", and inflation was consistent with medium term target. The central bank also reiterated that while Aussie has depreciated by around 15% since April, further decline in exchange rate is still possible. Other data released from Australia saw retail sales rose less than expected by 0.1% m/m in July, and the current account deficit came in wider than expected at AUD -9.4b in Q2.

The SNB vice president Danthine reiterated the pledge that the central bank will keep the EUR/CHF floor as long as needed. He noted that, "it is there as long as it corresponds to monetary conditions [and] the cap isn't there forever". He also stated that, "conditions justifying the cap are still there", and, "inflation risks are non-existent in Switzerland at the moment." The SNB president said in a newspaper earlier in the week that there is no reason to give up the EUR/CHF floor yet as it's still needed to guard against deflation and recession. Swiss GDP will be featured in European session and is expected to show 0.3% q/q growth in Q2.

The UK PMI construction will be a main focus in European session, and is expected to improve to 58.4 in August. The EUR/GBP dived yesterday on much better than expected UK manufacturing, and the PMI rose sharply to 57.2 in August versus expectation of 55. That's the fifth straight month of expansion and was the highest number since February 2011. Markit senior economist noted that the UK factories are "booming again" and the GDP could easily grow more than 1% in Q3. The economic outlook continue to reinforce expectation that BoE won't add new stimulus in near term. Released earlier today, UK BRC sales monitor rose 1.8% y/y in August. The eurozone will release its PPI for July. The BoE and ECB will meet later this week, and both are expected to stand pat.

Main focus of the day will be on the ISM manufacturing index, which is expected to drop back to 54 in August. In particular note that the employment component of the index improved markedly from June's 48.7 to 54.4 in July. A pleasure ISM employment will build up expectation of a solid NFP later this week. Major attention this week will be on the NFP figure, which should affirm the case for the Fed to taper asset purchases this month.