As expected, the Reserve Bank of Australia left interest rates at 2.50% following the latest monetary meeting. There were again significant comments within the statement that the Australian dollar was overvalued and would need to weaken, possibly substantially, in the medium term. AUD/USD weakened to lows below 0.9470 before regaining ground on solid risk appetite and yield grounds.
The Nikkei index was weaker and this provided net support for the Japanese currency as the dollar dipped to lows around 98.25 before finding some residual support with a reluctance to push the yen stronger given an underlying lack of confidence in the fundamentals.
After two PMI reports which were close to expectations, the UK services-sector data was much stronger than expected with an increase to 62.5 for October from 60.3 previously and this was the highest reading for seven years as orders were at record levels.
Sterling had already moved higher into the release with market rumours of a strong figure proving to be accurate. GBP/USD moved to the 1.5980 area and spiked sharply higher following the release with a peak above 1.6060 as EUR/GBP tested important support near 0.84.
EUR/USD moves during the European session were influenced significantly by cross-related trends. Initial dollar selling against Sterling helped EUR/USD recover the 1.35 level, but it was unable to sustain the gains and edged lower into the New York open as markets maintained dovish expectations surrounding Thursday’s ECB meeting.
The latest US ISM non-manufacturing report was stronger than expected with a reading of 55.4 for October from 54.4 the previous month with the orders data strong. A sharp increase in the employment component also boosted confidence in Friday’s payroll report.
In this environment, there was a slight further stirring of speculation surrounding Fed tapering intentions at December’s FOMC meeting and US bond yields moved higher. EUR/USD dipped lower to test support in the 1.3450 area, but bears were unable to trigger a break below with a correction back to 1.3480 later in New York. USD/JPY rallied to the 98.60 area following the US data as USD/CHF looked to hold above 0.91.