RBA Cuts; Market Awaits BOC

RBA cuts to 3.0%; UK construction PMI falls; negative interest on CHF deposits; EZ PPI slowed. Focus turns to BOC. There are no US reports.

The greenback is stronger across the board in the ongoing session. European equities are gaining about 0.6% and the relative strength winners are AUD and NZD.

AUDUSD initially moved lower to 1.0408 after the RBA cut the cash rate by 25 bp to 3.0% which is the level last seen during 2009. However, the pair bounced sharply higher to 1.0470 on a hawkish statement that followed. Economists forecasts that further cuts are unlikely until Q2 2013.

In the UK, construction PMI dipped back below the 50 level to 49.3 in November from October's 50.9. Confidence in business outlook is the lowest in nearly four years and new orders fell at the sharpest pace since 4/2009. GBPUSD trades around 1.6120.

EURCHF continues to push higher on yesterday's announcement from Credit Suisse that it will impose negative interest on CHF holdings above 100M from December 10^th, WSJ reports. EURCHF session high is 1.2142 and the rate eased a bit after clarification was provided that the negative rate will be set on individual basis.

In other news, Eurozone PPI slowed to 2.6% in October from previous 2.7% and Spanish unemployment rose 74.3K in November from prior 128.2K

The US session will only bring the BOC rate decision at 9:00 am ET. The overnight rate will most likely remain at 1%. The question is whether the BOC will maintain the hawkish bias despite weakening fundamentals. Another risk event is the European finance ministers meeting in Brussels to discuss bank supervision and securities regulation. There are no US data reports.

Patrik Urban