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Fundamental Morning Wrap: RBA holds rates as BoE considers cutting

This morning´s institutional research has been thin on the ground, most probably due to the segmented nature of this week, with different central banks all reporting at different junctures. Last night saw the RBA meet and hold rates again, while analysts recommend staying short EUR ahead of the ECB meet and to be prepared for a rate cut from the BoE.

AUD

Andrew Salter of ANZ note that last nights Q4 BoP data confirm foreign direct investment (FDI) remains the only funding source for Australia’s current account deficit. He adds that in terms of the persistence of these inflows, this is the ninth positive net FDI inflow, an outcome that has not been matched since 1991 and writes, “We are positioned for a strong AUD via AUD/NZD.” Meanwhile Lee Hardman of BTMU meanwhile notes that AUD strengthened overnight following the RBA's decision to hold rates as Retail Sales improved. Karen Jones of Commerzbank notes that the decision has seen AUD/USD collapse to 7 month lows. Danske Bank analysts reiterate that the RBA held rates as expected, adding that the bank looks to be in wait and see mode for now, with Governor Stevens reiterating that the inflation outlook allows to ease monetary further if necessary.

GBP

ING economist James Knightley suspects that despite the rise in UK PMI, further QE will most probably follow, especially with the low hurdle following the previous MPC vote. RBS economist Ross Walker notes that the odds of an increase in the asset purchase facility have been increased by weak manufacturing PMI and BoE policymaker comments However, he adds that the odds have too been exaggerated.

EUR

RBS strategist Greg Gibbs recommends staying short EUR into the ECB meeting, adding that overall he is slightly bemused by the ECB´s policy approach, citing a damaging separation between financial world interpretations and real world realities being part of the problem.

Forex: USD/CHF trading at 0.9400 level after EMU retail figures

The USD/CHF recovered the mark of 0.9405/06 in recent minutes, after the reporting of economic data in the EMU. Despite better-than-projected data, the figures still paint a gloomy picture of Europe that remains gripped in recession. With the 0.9400 level intact, the pair now trades at the precipice of positive territory during European trading Tuesday.
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Forex Flash: USD/JPY in focus following parliamentary hearing – UBS

In Japan, the two BoJ Deputy Governor nominees faced a parliamentary hearing – Nominee Kikuo Iwata called for "regime change" at the BoJ along with more radical easing, and said he would not be bound by precedent when conducting policy going forward. Meanwhile, the USD/JPY slipped however when a single DPJ (opposition) lawmaker said he would not support Iwata's confirmation because of Iwata's desire to see BoJ law changed. It is not yet clear if the rest of the DPJ harbor similar concerns. No date has yet been set for the confirmation vote, though March 14 or 15 seem likely.
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