Bell FX Currency Outlook: The Australian dollar remains well supported this morning following a night of strength in equity markets and upbeat statements from the G20 regarding Europe.
Australia: Markets were strong overnight on speculation the Federal Reserve will announce measures to stimulate the US economy at the FOMC meeting today.
Signs of a slow-down in the US economy have increased talk and the chance of the FOMC easing policy but Bernanke's recent remarks do suggest the Fed is not ready to do so. The markets are leaning towards the view that the Fed will stand ready to act if necessary, particularly if there is a large event out of the European economy.
Further easing from the FOMC will most likely be in the form of "Operation Twist". This makes us feel the AUD remains quite supported for now.
Expectations of easing on the US and the RBA minutes released yesterday which stated "the arguments were finely balanced" for a rate cut in June.
Markets have adjusted their expectations of rate cuts after stronger GDP figures and comments by RBA Governor Stevens.
The feeling now is the RBA is likely to be on hold in July, unless Europe "blows up". A cut in August remains a chance should conditions weaken.
We see today's range either side of 1.0200 and the next main focus for our market is the outcome of the FOMC meeting which is due 2:30am Thursday morning AEST.
Majors: As written, the US Dollar was weaker overnight as "risk assets" gained on the speculation of further stimulus from the Fed. Share markets were higher in Europe and the US, while 10-year yields on Spanish and Italian government bonds declined but remain at high levels.
Reports overnight suggested Germany might loosen its opposing stance to the European Financial Stability Facility (EFSF) purchasing sovereign bonds of peripheral euro area countries directly, which would be seen as a step towards greater burden sharing across the euro area.
US Treasuries were sold at the "long end" and Australian bond futures were also sold. Oil rose overnight on speculation of further easing by the Fed, the increased probability of a Greek government being formed and talk of tighter ties among EU member banking systems.
20 JUNE AU Westpac Leading Index APR
NZ Current Account Balance Q1
US FOMC Meeting (2:30am ASET)