The British pound joins its Australian counterpart in the league of high yielding currencies to rally against most currencies after a faster than expected increase in UK inflation. Last week's hawkish comments from the Assistant Deputy Governor of the Reserve Bank of Australia Edey following strong job numbers and inflation data have cleared the way for a rate hike next month. Aussie/USD rose to the highest level since December 1996 at 80.32 cents. These price moves have returned confidence to higher yielding currencies at the expense of the yen and Swiss franc, boosting the carry trade especially after the 1.0% rally in US stocks. But the story should be further clarified today upon today's release of US housing starts.
At 8:30 am, US housing starts are expected to have rebounded to 1.45 mln last in February, after tumbling over 14% to 1.408 mln in January. Failure to rebound above 1.41 mln is likely weigh on the US currency, especially as market's attention remains focused on housing and sub-prime lenders ahead if tomorrow's FOMC statement. Housing permits are expected to have dropped 1.3% to 1.55 mln after a 2.6% decline to 1.571 mln.
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