RBA defies expectations as US takes to the polls

The main event overnight was the RBA’s decision to maintain interest rates at 3.25%, despite expectations of a reduction in rates to 3.00%.  As would be expected, the Aussie dollar rallied on the back of the rate statement release printing 6 week highs against the US dollar of 1.0438, as well as gaining against all 16 of its major counterparts.

The euro traded a 1.2780 / 1.2800 range overnight before coming under pressure during early trading in London over continued concerns for both the Greek reform package as well as Rajoy’s dismissal of a precautionary bailout.

Naturally the markets will be dominated by the US elections this week, which commence will commence today. If Obama wins we are likely to see a decline in US 10year bond yields as well as lower interest rates, which have historically been associated with a stronger bullion. A Romney victory however, could sustain, if not increase interest rates on expectations of a more hawkish Fed, a stronger dollar and therefore keep gold prices low. Following the outcome from the polls, attention will soon turn to budget negotiations addressing fiscal cliff issues ahead of new congress in January.

A saturated week on the data front as we await further monetary policy meetings from both MPC and ECB on Thursday. Once again the general consensus is for the MPC to maintain rates at 0.50% and QE at £375bn. This morning we will receive services PMI data from Europe, manufacturing and industrial production data from UK at 9.30am as well as German Factory orders at 11.00am.

EUR/USD

Supports 1.2760 – 1.2650 | Resistance 1.2880

USD/JPY

Supports  80.10-79.60 | Resistance 80.35-80.65-80.85

GBP/USD

Supports 1.5910 | Resistance 1.6045