News

After hitting some turbulence during Asian session  caused by rumors of potential Chinese rate hike, high beta currencies rallied in early morning European trade boosted by better UK economic data and expectations that Ireland would pass its austerity budget making it eligible for bailout funds from EU.  In Asia today, equities fell and USD/JPY hit a session low of 82.35 after the official China Securities Journal reported that China may raise its interest rates again over the weekend.  Last week PBOC officials stated that they were switching to a “prudent” monetary policy instead of earlier  “loose” monetary policy stance perhaps in preparation of this move.
China has seen its food price inflation explode over the past several months leading many analysts to conclude that the country has no choice but to hike rates in order to control the growing price pressures in the system. The  rate hike if it were to occur could dampen growth in China but investors quickly shrugged off those concerns and rallied equities of their lows helping high beta currencies to recover.
In Australia the RBA kept rates on hold at 4.75% but the accompanying statement was not as dovish as the market had feared so the Aussie rallied to 9960 boosted surging commodity prices.  As we noted earlier,” This focus on employment growth is likely to be key to Aussie’s direction in the near term. This  Wednesday, the market will get a look at November’s employment data with consensus calls for another  21K new jobs. If employment data continues to expand at a healthy pace,  expectations  for another 25bp  rate hike in Q1 of 2011 are likely to rise helping to fuel further increases in the pair. However, if labor demand cools considerably, Aussie’s recent rally is likely to hit a brick wall with AUD/USD  failing at parity once again as traders begin to price in a much more significant slowdown in Australian growth as we approach 2011.”
Meanwhile data from both Germany and UK was mixed but generally bullish as UK Manufacturing Production rose by 0.6%  but was somewhat offset by drop in Industrial Production of -0.2% which was dragged lower by declines in oil and mining extraction. Cable rose to 1.5800 in the aftermath of the release and hovered near that level into the North American open.  In Germany, factory orders saw a strong rebound  rising 1.6% but that was slightly less that 1.9% eyed by the market. The EUR/USD rose to a high of 1.3396 before retreating to 1.3360 as traders awaited the outcome of the Irish budget vote.
With no US data on the calendar price action in the EUR/USD is likely to be driven by events on the other side of the Atlantic as Irish budget votes is set for 15:45GMT. With several independent lawmakers tipping their support for the austerity budget expectations are that it will be ratified. The news should provide some support for the EUR/USD as sovereign debt concerns begin to ease and the pair could make another run at 1.3400 level as the day progresses.