Forex News: Aussie Gained against USD with RBA rate benchmark setting

Wednesday, April 7, 2010

In the UK the construction sector expanded in March for the first time in more than two years, led by a sharp rise in new orders in the housing and commercial sectors. The Chartered Institute of Purchasing and Supply/Markit construction PMI index jumped to 53.1 last month from 48.5 in February - the first reading above the 50 level that divides growth from contraction since February 2008.

Incoming new orders increased during March for the first time in four months and only the second time in the past two years. However, construction firms continued to shed jobs in March and concern over cutbacks in government spending meant they were less optimistic than in February.

"Though it's great to see the UK construction sector turn the corner after two years of relentless contraction, it's still very early days," said David Noble, chief executive officer at the Chartered Institute of Purchasing and Supply. "The recession hit construction the hardest and because the industry is operating from such a low base, this upturn may be short-lived."

Of the three subsectors, house-building showed the strongest rise in activity, expanding for a seventh consecutive month. Commercial activity reported growth for the first time since February 2008. The civil engineering sub-sector, which is typically more reliant on public spending, contracted. Construction accounts for around 6% of Britain's economic output. In the first quarter as a whole, British construction activity was broadly unchanged, suggesting the sector is no longer acting as a drag on GDP.

Early tomorrow the UK manufacturing production PMI will be released. This indicator dropped by 0.9% last month, the first drop in five months, hurting the Pound. A correction is predicted this time – a rise of 0.7%. Note that manufacturing is 80% of industrial production which is published at the same time, that figure is expected to rise by 0.5%.

This week's major announcement for the Pound is the rate decision; the announcement will be made tomorrow at 11.45 GMT. The rate is expected to remain unchanged at 0.5%. The Asset Purchase Facility is also expected to remain unchanged.

In the forex online market yesterday against the US Dollar Pound gained 0.18% to close trading at GBP 1.5241.

American unemployment claims will also be published tomorrow at 12:30 GMT. Yet another drop in the weekly jobless claims is due. After reaching 439K last week, they’re predicted to drop to 432K, supporting more job gains in the next Non Farm Payrolls.

Finally yesterday Australia’s central bank raised its benchmark interest rate to 4.25% and signaled further increases, dismissing warnings that higher borrowing costs are already eroding consumer spending. Governor Glenn Stevens boosted the overnight cash rate target from 4%, the Reserve Bank of Australia said in a statement in Sydney yesterday. The Aussie gained 0.74% against the US Dollar following the announcement, jumping from AUD 0.9207 to AUD 0.9276.

Stevens was the first G-20 policy maker to raise borrowing costs twice this year. By contrast, the U.S. Federal Reserve Chairman Ben S. Bernanke said last month that the world’s biggest economy “continues to require the support of accommodative monetary policies.” The Fed has kept its benchmark rate close to zero since late 2008 and the European Central Bank’s rate is at a record low of 1%.

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