Aussie Stays Soft As RBA Left Door Open For Rate Cut

The Aussie stays soft in tight range against dollar in Asian session after the RBA signaled in its meeting minutes that the door is still open for further interest rate cut. The central bank noted that "given the substantial degree of policy stimulus that had been imparted, it was prudent to hold the cash rate steady." However, the board won't "close off the possibility of reducing it further should that be appropriate to support sustainable growth in economic activity." RBA also said Aussie's exchange rate remained "uncomfortably high" and "a lower level would likely be needed to achieve balanced growth." That is, boosting growth in other sectors to pick up the slack left by mining investments, which topped. Also released, conference board leading indicator rose 0.5% in October. Technically, while the AUD/USD lost some downside momentum as markets prepare for the FOMC announcement later this week, the near term trend is still bearish for a test on 0.8847 low. The EUR/AUD is also staying in tight range around 1.54, holding on to near term bullishness for next projection level at 1.5787.

Elsewhere, markets continue to position themselves ahead of the FOMC announcement on Wednesday, where Fed will decide whether to taper the asset purchase of not. Plus, Fed will also release new economic projections. DOW drew support from 55 days EMA and recovered by closing 129.21 pts higher at 15884.57. But it's kept well below near term resistance at 16174.5. 10 year yield rose slightly to close at 2.877% but is also held below recent high of 2.932%. The Dollar index is hovering in tight range above last week's low of 79.75. EUR/USD and other major dollar pairs are stuck in tight range. Traders are refraining to commit to either direction for the moment as the odds are equal for tapering or not tapering. More regarding FOMC here in To Taper Or Not To Taper? FOMC Meeting Awaited.

In Europe, ECB president Draghi said in testimony to European parliament that governments needed to step up the efforts to create the banking authority. He expressed the concern that "decision-making may become overly complex and financing arrangements may not be adequate." And, "these things must be done instantly", criticizing that "one can't have hundreds of people consulting on whether a bank is viable or not." Regarding monetary policies, Draghi noted ECB is "fully aware of the downward risks that a protracted period of low inflation entails." But he emphasized "medium- to long-term inflation expectations are firmly anchored in our case; they were not in Japan of the early 90s, early 2000s."

On the data front, the UK will release inflation data today and in particular, CPI is expected to be unchanged at 2.2% yoy in November. Eurozone will also release November CPI final and is expected to be unchanged at 0.9% yoy. Germany will release ZEW economic sentiment which is expected to show improvement to 55 in December. Inflation data will also be a focus in US with CPI expected to rise back to 1.3% yoy in November while core CPI is expected to be unchanged at 1.7% yoy. NAHB housing market index will also be featured.