RBA Sticks To Current Monetary Policy - 1.3.2011

The dollar advanced against both the yen and the Swiss franc during the Asia session, despite the lack of news flow. AUDUSD came under modest selling pressure after the RBA policy statement suggested no urgency in tightening further. EURUSD traded 1.3781-1.3830, USDJPY 81.74-82.24. Asian equities were broadly stronger after the S&P 500 finished +0.565% ahead. The Chicago PMI surprised to the upside as did the Dallas Fed manufacturing activity index while pending home sales dropped slightly more than consensus estimates. St. Louis Fed President Bullard said the Fed will get the balance sheet back to normal over a roughly five-year period, which is a more aggressive timeframe than had been mentioned by other Fed speakers. Bullard said most other FOMC policymakers are opposed to adjusting the current program of bond purchases. New York Fed President Dudley said it would be unwise for the Fed to overreact to recent commodity price pressures and there are signs that core inflation is now stabilizing. Next to speak is Fed Chairman Bernanke, who begins his semi-annual testimony to Congress on monetary policy.

EUR

Final January CPI numbers in the Eurozone were revised down slightly to -0.7% m/m and 2.3% y/y from the preliminary -0.6% m/m and 2.4% y/y estimates. Core inflation was also revised down to 1.1% y/y, which suggests that most of the acceleration in price pressures is non-core based. ECB policymakers have said that their main concern is second-round price effects, so these numbers could give a slight boost to the doves ahead of Thursday's policy decision.

AUD

The RBA kept policy unchanged, in line with consensus. The accompanying statement offered little in the way of policy guidance, noting only that the board "judged that the current mildly restrictive stance of monetary policy remained appropriate in view of the general macroeconomic outlook".