Aussie Soft After RBA, European Majors Firm

Markets remain mixed in Asian session today. Dollar is seen soft against Sterling and Japanese yen but is bounded in right range against euro. Overnight's strong rebound in crude oil sent USD/CAD sharply lower through 0.9900 level but no follow through selling is seen today yet. Aussie's recovery lost momentum and weakened after RBA statement.

The strong rebound in EUR/AUD is raising the prospect of rally resumption. While the Japanese yen rebounded sharply yesterday, it's still seen as a leg inside recent correction pattern. We'd anticipate yen's selloff to resume later this week.

The RBA, as expected, left the cash rate unchanged at 4.25% in April. Although macroeconomic data during the intermeeting period came in weaker than expected, policymakers believed it is prudent to take more time gauging forthcoming data for assessing the growth outlook. The central bank cited improvement in financial market sentiment, robust household spending would continue to support expansion.

Policymakers acknowledged that the world economy will grow at a below-trend pace this year, given a number of countries in Europe expected to suffer from economic contraction and China’s growth has been moderating. Yet, there’s no indication of 'a deep downturn' so far.

New Zealand finance minister, English, said that the 2012 budget will be either a zero budget or close to zero and the country aims to return to budget surplus by 2014/15. English noted that "'getting back to surplus will help create a buffer against future global shocks". IMF praised the policy stance as "appropriate" which "strikes a balance between the need to limit both public and external debt increases while containing any adverse impact on economic growth during the recovery."

And with the relatively "modest" public debt, New Zealand could delay the deficit reduction plan should economic outlook deteriorate. Regarding monetary policy, IMF said that "with output below potential and expected inflation within the target range, monetary policy should remain accommodative for now, and should act as the first line of defence against near-term adverse shocks."

Japan's monetary base fell -0.2% yoy in March to JPY 112.46T. This is the further liquidity supply drop for the first time in more than three years and some argued that the data could push BoJ for further monetary easing. Nonetheless, BoJ clarified that the year-on-year fall was technical due to the abundant fund supply operations following the natural disaster back in March 2011. After all, there is no change in expectation for further easing from the central bank as much work is still needed to meet the 1% inflation target.

The British Chamber of Commerce projected that UK GDP will grow 0.3% in Q1, following the -0.3% contraction in Q4 of 2011. That is, UK economic recovery will remain weak but the country could avoid a technical recession. BCC expects full year growth in 2012 to hit 0.6%. BCC noted that UK is "still facing huge challenges and the recovery is much too slow". Also, the group is “still concerned that the unresolved problems in the eurozone may trigger new upheavals later this year.” The group urged BoE to ensure that the asset purchase programs would eventually encourage increased lending to viable SMEs.

Looking ahead, UK PMI construction will be a main focus in European session for fueling further rally in sterling. Eurozone will release PPI will US will release factory orders as well as FOMC minutes.