Talking Points:

Aussie Dollar Fell on Fed Taper Speculation, Ignoring RBA Rate Decision
Japanese Yen Sold as Post-ISM US Yields Rise Fuels Carry Trade Rotation
British Pound Unlikely to Find Volatility in November’s Construction PMI

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The Australian and New Zealand Dollars declined in overnight trade as most Asian stock exchanges declined, pulling down the sentiment-linked currencies along the way. The selloff followed a down day on Wall Street in the wake of a better-than-expected US ISM Manufacturing report that drove speculation of a relatively sooner move to “taper” the Fed’s QE3 stimulus effort. Japanese shares diverged as a post-ISM increase in US yields encouraged rotation out of USD-funded carry trades into JPY-based alternatives, weighing on the Yen and boosting the outlook for local exporters.

The Aussie was little-changed after the Reserve Bank of Australia kept the benchmark interest rate at 2.5 percent as expected and delivered a policy statement that was broadly unchanged from the prior month. While RBA Governor Glenn Stevens characterized the exchange rate as “uncomfortably high” once again, he likewise dismissed the case for renewed rate cuts, saying the effects of past easing enacted since late 2011 will continue to filter into the broad economy “for a while yet”.

November’s UK Construction PMI reading headlines a quiet European economic calendar. Expectations call for a shallow pullback to 59.0 after the index hit a record high at 59.4 in the prior month. Bank of England Governor Mark Carney and his colleagues spent much of last week arguing forcefully that the great victory of the forward-guidance policy framework adopted in August has been to disconnect economic data outcomes from policy speculation. On balance, that hints a marginal change on the PMI gauge is unlikely to offer a meaningful boost to British Pound.

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