Talking Points:

US Dollar May Extend Advance if ISM Manufacturing Data Tops Forecasts
Australian Dollar Ignores RBA Announcement with Fed Policy Bets in Focus
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A relatively quiet economic calendar in European trading hours is likely to see traders looking ahead to US news-flow, where the spotlight will fall on Augusts’ ISM Manufacturing print. The index is expected to inch downward to 57.0 from a three-year high of 57.1 recorded in the prior month, implying the pace of factory-sector activity growth narrowly slowed.

US news-flow has increasingly outperformed relative to consensus forecasts over recent weeks. This suggests that analysts are underestimating the vigor of recovery in the world’s largest economy and opening the door for an upside surprise.

Such an outcome is likely to fuel speculation that the time gap between the end of the Fed’s “QE3” asset purchases and the first subsequent interest rate hike will be relatively short, pushing the US Dollar higher against its top counterparts after the benchmark unit hit a 7-month high against its key counterparts. Indeed, the greenback outperformed in overnight trade as US bond yields soared in anticipation of this week’s high-profile data releases.

The Australian Dollar was little-changed after the RBAmonetary policy announcementregistered in line with the status quo. Governor Glenn Stevens and company repeated the now-familiar argument that “the most prudent course is likely to be a period of stability in interest rates” for the time being. The Aussie fell earlier in the session as the aforementioned jump in US yields punished rates-sensitive currencies at both ends of the return spectrum. In fact, the Japanese Yen proved weakest on the session on the back of a widening US-Japan rates gap.

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