Gold Posts Record Highs above $1600 on Safe Haven Buying; RBA Policy Minutes Show... |
Market volatility has slowed to a near halt ahead of the EU summit meeting event risk on Thursday. The lack of activity is being reinforced by the fact that there have no major economic headlines and very little in the way of macro data to give direction. Treasury markets have been one exception, as Spanish and Italian bond yields have seen steady rises higher.
During the Asian session, the Reserve Bank of Australia released the minutes from the July 5th monetary policy meeting, which surprised markets by removing their previously hawkish bias, instead discussing growth concerns and credit contagion possibilities. The EUR/USD ranges between 1.4080-1.4140 with the USD/JPY at 78.95-79.20. Gold has also received a lot of attention posting a record high above $1605 per ounce. The S & P 500 dropped 0.8% European stock markets fell 2% on decreases in risk sentiment. Today, macro data will come in the form of US housing figures.
The RBA policy minutes were much less optimistic than previously releases where inflation was seen as a primary focus and showed more of a neutral stance. Essentially, the suggestion was that recent economic data is showing that the RBA has some flexibility in terms of timeframes for the next move in its tightening cycle.
The bank says that it is now choosing to take a conservative stance and that the market should not assume that rate hikes are imminent. As a result, Australian stock markets did not see as much of a drop as other regional equities during the session but the Aussie Dollar came off more than the other high yielders (the NZD, for example, remains near record highs). One major factor that could change the RBA’s tone would be the July 27th CPI data and if we see an upside surprise in inflationary pressures, this latest release is going to be seen as less credible.
The Bank of Canada will hold its monetary policy meeting today but most of the market is expecting no change to the base rate. If this is the case, all of the attention will be given to the policy statement, which will have the potential to move markets given what happened during the last RBA meeting. If the BoC shifts to a neutral stance, this will be more of a surprise to markets because the inflation figures from May showed a large rise in price pressures. All of these central bank comments will give markets some guidance for risk appetite since we have no top tier macro data to work from during today’s session.
The Riksbank also released its minutes from the July 5th meeting and the tone was essentially unchanged (relatively hawkish). The bank did raise rates during that meeting and there were suggestions that rates will continue to rise during the three remaining meetings that will be held in 2011 but that this could changes if the situation in the Eurozone does not resolve itself soon.
