There has been a growing divergence between AUD and NZD today ahead of today’s RBA meeting. Both dollars bounced back to start the week but as trading has progressed, AUD has dropped back while NZD has held onto its gains. The AUD weakness appears related to speculation about today’s RBA meeting. Australian PMI dropped off sharply last month and back into contraction territory, raising the potential that the central bank could shift back toward a more dovish tone even if it doesn’t take any action. Australian retail sales due ahead of the meeting may give another indication of how the economy is going. Traders may also look closely to the RBA statement for confirmation of recent comments from Governors on the potential for central bank intervention in currency markets to knock down the dollar. The RBNZ had intervened earlier this year then stopped, and the issue had gone away until recently. The other trend we have been seeing in trading so far today has been speculation on what an improving global economy could mean for monetary policy and resource demand. Manufacturing PMI overall indicated that a global recovery continues to take hold, with the US, UK, Sweden and Greece showing significant improvement while Australia, Russia, Spain and Brazil lagged behind. The prospects for an accelerating economy has increased interest in cyclical commodities again, particularly copper, crude oil and gasoline as expectations for resource demand increase. These types of gains could be more sustainable over the longer term than those driven by easy-come easy-go fluctuations in political risk expectations. This has also increased interest in resource currencies with NZD, NOK and SEK among the stronger performers. CAD slipped a bit on a softish Canadian PMI report. Improving global economic conditions have also increased the potential that central banks could start to take their feet off the gas pedal, raising speculation that the US FOMC could start tapering back QE a bit at its meeting this month, or in March. USD has been rallying along with GBP on the potential of less dovish central banks going forward, while stock indices have been retreating on anticipation that the QE rally fuel may start to be removed. On the other hand, defensive currency plays particularly gold, silver, JPY and CHF have been slammed again in this environment as capital flows out of havens and back into more aggressive stances. Economic News Highlights of overnight announcements include: Manufacturing PMI: US Markit PMI 54.7 vs street 54.3 US ISM manuf PMI 57.3 vs street 55.2 vs previous 56.4 Canada 55.3 vs previous 55.6 Australia 47.7 vs previous 53.1 UK 58.4 vs street 56.1 Germany 52.7 vs street 52.5 France 48.4 vs street 47.8 Spain 48.6 vs street 51.1 Italy 51.4 vs street 50.8 Eurozone 51.6 vs previous 51.5 Sweden 56.0 vs street 54.0 Switzerland 56.5 vs street 55.0 Greece 49.2 vs previous 47.3 (highest in over 4 years) South Africa 52.4 vs previous 50.9 Russia 49.4 vs previous 51.8 Brazil 49.7 vs previous 50.2 Other announcements: US construction spending street 0.4% Upcoming significant announcements include: 11:30 am AEST Australia retail sales street 0.4% 12:00 pm AEST China non-manufacturing PMI previous 56.3 2:30 pm AEST Australia interest rate decision 2.50% no change expected 12:30 am AEST Singapore electronics index street 51.2 12:30 am AEST Singapore PMI street 51.4 2:00 am GMT UK same store sales street 1.1% 9:30 am GMT UK construction PMI street 59.0 6:00 am EST Brazil GDP street 2.4% vs precious 3.3% 9:45 am EST US ISM New York street 59.3

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