Aussie Rebounds On Retail Sales, RBA On Hold

Australian dollar rebounds strongly today on better than expected retail sales and buying continues after RBA rate decision. Sales rose 0.9% mom in January comparing to expectation of 0.4% mom. RBA left rates unchanged at 3.00% as widely expected. In the accompanynign statement, governor Stevens noted that inflation will be "consistent with target" and growth "a little below trend" over the coming year. And the current accomodative monetary policy stance is "appropriate". He said that there are signs that prior rates cuts are having some of the expected effects but exchange rates remains higher than expected. Nonetheless, Stevens also noted that with the current inflation outlook, there is scope for further policy easing if necessary. AUD/USD is back above 1.02 level after a dip to 1.0115 yesterday and breached 1.0148 support briefly. While downside momentum remains unconvincing, with 1.0289 resistance intact, further decline is still expected in the pair.

EU Economic and Monetary Affairs Commissioner Rehn said that Ireland and Portugal could be given more time to repay the bailout loans to ease their exit from the bailout program and return to markets. Rehn noted that troika will "continue to examine an appropriate and credible extension of the maturities on the early EFSF and EFSM loans, with a view to smoothing the path back to durable market access". Dutch Finance Minister Dijsselbloem hailed that both countries' programs are "on track" and "performing well" in spite of the challening macroeconomic situation. Meanwhile, Rehn also said that the current situation in Eurozone "may also justify in a certain number of cases reviewing deadlines for the correction of excessive deficits,"

Die Welt reported that some ECB members were worried about the central bank's participation in the Eurozone rescue efforts as these might create a conflict of interest and compromise its independence. The newspaper cited that "the level of discomfort has reached such a level that there are considerations among some important members of the ECB to leave the troika entirely". Yet, ECB board member Joerg Asmussen commented that the ECB would not leave the troika and stressed that the members "don't see any threat to our independence while we are participating in the troika". Asmussen stated that "the ECB participation in the troika is key. We have great knowledge about Europe, its institutions, its economy and we especially provide expertise on macroeconomic and especially financial sector issues. We will not withdraw from the troika".

In US, DOW was supproted by expectation of continuation of policy easing from Fed and closed at five year high. Fed Vice chairman Yellen warned yesterday that "insufficiently forceful action to achieve our dual mandate also entails costs and risks." And, she still saw the balance of risks "calling for highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment." And, "ending asset purchases before observing a substantial improvement in the labor market might also create expectations that the amount of accommodation provided would not be sufficient to sustain the improvement in the economy." She also down played the risk of quantitative easing and said "there is no evidence that the Federal Reserve's purchases have impaired the functioning of financial markets." Meanwhile, she also noted that Fed "would not consider selling assets off until after the federal funds rate is increased."

In Japan, BoJ deputy governor nominee Iwata said that BoJ should buy bonds maruting up to five years and longer, comparing to current up to three years bonds. Meanwhile, he said that revision to law might be needed for it to achieve the 2% inflation target easiser. Though he emphasized that BoJ should be explicitly given the freedom to choose how it will meet the inflation target. The comment triggered some criticism as an opposition Democrat lawmaker Tsumura said he couldn't support Iwata bceause of the intention to revise BoJ laws that could risk huting the central bank's independnce.

Looking ahead, services data will be the main focus today. Eurozone will release finalized services PMI reading and retail sales. UK PMI services will be the major release in European session and is expected to be unchanged at 51.5 in February. US ISM non-manufacturing is expected to drop slightly to 55.0 in February.