Aussie Soars After RBA On Hold, Cautious Elsewhere Ahead Of US Election

Aussie jumps sharply after RBA kept rates unchanged at 3.25%. That surprised part of the markets which expected a cut to 3.00%. At the accompanying statement, Governor Glenn talked about the upside surprise on inflation. According to him "recent outcomes on inflation were slightly higher than expected, though they still show inflation consistent with the medium-term target, with underlying measures around 2.5% over the year to September, and headline CPI inflation a little lower than that."

Moreover, "the introduction of the carbon price affected consumer prices in the September quarter, and there could be some further small effects over the next couple of quarters." We retain our view that the RBA would announce one more cut by the end of the year.

Technically, AUD/USD resumed recent rebound from 1.0148, and should now challenge 61.8% retracement of 1.0624 to 1.0148 at 1.0442. Current momentum argues that this fibonacci level might be taken out. But even in that case, we'd still be cautious on reversal signal as it approaches 1.0624 resistance. The steep decline in EUR/AUD and break of 1.2328 support also argues that deeper fall is underway to 61.8% retracement of 1.1602 to 1.2823 at 1.2068.

While the Dow recovered mildly by rising 19 points overnights, Asian markets are broadly lower as investors are cautious ahead of US election. As the presidential election approaches, a Pew Research Center poll conducted between October 31 and November 3 suggested that President Obama's support was 48%, compared with Romney's 45%, as the handling of Hurricane Sandy probably gave some credits to the President.

In the eurozone, people in Greece protested as the government plans to implement a new round of austerity measures so as to get the next tranche of bailout. These measures include spending cuts and tax hikes and are expected to save around 13.5B euro in 2013-14. The ECB is expected to leave its both standard and non-standard monetary policies unchanged at its Thursday meeting.

For the BOE, Governor Mervyn King stated last month that "should those [more positive] signs fade the MPC does stand ready to inject more money." While the majority of the member might still opt for a status quo at the upcoming meeting, we expect to see a split in the decision making process.

On the data front, UK BRC sales monitor dropped -0.1% yoy in October. Australia house price index rose 0.3% qoq in Q3. Main focus in European session in UK industrial and manufacturing production while eurozone PMI services final and PPI will be released. Canadian Ivey PMI will also be featured later today.