Aussie Mildly Lower After RBA, While Dollar Firmer On Fed Speculations

The Aussie weakens mildly but stays in range against dollar and euro after RBA left rates unchanged at 2.50% as widely expected. The accompanying statement was almost a carbon copy of the prior ones. The central bank noted the full effects of prior rates "are still coming through, and will be for a while yet". Also, it reiterated that Aussie remained "uncomfortably high" in spite of recent depreciation and "a lower level of the exchange rate is likely to be needed to achieve balanced growth in the economy. Overall, some analysts noted that RBA would be happy to stay on sidelines and the bar for another rate cut is quite high. Also released from Australia today, retail sales rose slightly more than expected by 0.50% mom in October. Technically, the AUD/USD is consolidating above 0.9055 temporary low while the EUR/AUD is consolidating below 1.5030 temporary top. Outlook is quite mixed as another decline is mildly in favor in the AUD/USD. But, the EUR/AUD could extend the pull back from 1.5030.

In Eurozone, ECB vice president Constancio said yesterday that the so-called Single Supervisory Mechanism could trigger integration in the region's banking industry with a wave of bank mergers. Constancio noted that "the weak profitability and excess capacity of the European banking sector suggests that efficiency gains could be achieved". And, the SSM could "open a period of restructuring in the European banking sector." He said that M&A activity has been "very weak" in eurozone since 2008, that is the global financial crisis. And, incentives to raise profitability and returns on assets would drive a process of restructuring.

The strong ISM manufacturing data released yesterday stoked speculations that Fed would start tapering before year end. The data send the Dow down -77.64 pts overnight to close at 16008.77, just barely above 16000 psychological level. S&P 500 also just defended 1800 to close at 1800.90. Treasury yields, on the other hand, was given a boost with 10 year yield closing back above 2.80% while 30 year yield closed up at 3.86%. The EUR/USD dropped sharply yesterday, but is holding above 1.3520 minor support for the moment. We'll need more evidence on confirming reversal in the pair. More volatility would be seen later this week with ADP employment ISM services featured tomorrow, GDP on Thursday, and NFP on Friday.

As for today, Japan monetary base rose 52.5% yoy in November, labor cash earning rose 0.1% yoy in October. China non-manufacturing PMI dropped to 56.0 in November. UK BRC sales monitor rose 0.6% yoy in November. UK will release PMI construction while Eurozone will release PPI.