Reserve Bank of Australia chooses to wait for the next inflation report before deciding on rates

- Reserve Bank of Australia chooses to wait for the next inflation report before deciding on rates: With markets pricing in a 50/50 chance of a rate hike in the moments leading up to the decision, the AUD/USD fell below 0.81 after the RBA left rates unchanged. There was no hawkish commentary to provide support to the AUD, as the RBA never issues a statement if they leave rates unchanged. The consensus is that those who were thinking the RBA would hike today have simply rolled their calls forward to May, limiting losses on the AUD. The RBA board meets just one week before the May 8 budget, but the RBA showed independence at the same point last year by hiking 25 basis points at that time. After the decision Aussie Prime Minister Howard said that rates are still low in Australia.

- Some suggest that it may be premature to assume the RBA will hike rates in May: Aussie unemployment at a 30-year low and signs that businesses were borrowing to boost capacity should take some of the price pressures out of the economy, meaning that the RBA should be less likely to raise rates. (Commonwealth Bank chief economist Michael Blythe). Several tech analysts believe that the AUD rally is running out of steam, as the daily RSI has crossed above and then below 70 (overbought) for the first time since November 2006. Wave technicians also suggest we are close to a top in AUD/USD.

- Weak JPY and the G7: Ex-BoJ member Hirano said that the EUR/JPY will not be a topic at G7 meeting, but Canada's Finance Minister Flaherty said that JPY weakness may be one of G7 topics on currencies. Flaherty added that he is to discuss the JPY with Japanese finance Minister Omi when they meet in Tokyo on Tuesday. The G7 finance ministers meet in Washington on April 14-15.

- Forex: The GBP/USD traded in a tight range after the GBP came under pressure during U.S. trading. Traders said they heard of sizeable USD-buying orders and that's perhaps why the GBP weakened today. The consensus is that the economic fundamentals in favor of the GBP generally haven't changed. Others say there is limited upside for GBP/USD going forward, given that the market is predominantly long sterling. Technical analysts say that EUR/JPY may rise to the all-time high of 159.65 after it closes above 157.55 (76.4% retracement of the EUR/JPY rise from 150.76 on March 6 to 159.65 high). The KRW continued to gain strength AS Fitch says they see the Bank of Korea leaving rates unchanged in 2007 on steady export numbers in addition to expectations the free-trade agreement with the U.S. (there is growing expectation that the Bank of Korea may seek to cut rates in 2007).

- Most Asian Equities rallied on US pending homes sales data and earlier gains in USD/JPY. The Nikkei 225 is currently higher by more than 1.5% on gains in exporters as the USD/JPY pair rose above the 118.50 level. Japanese equities are experiencing a broad-based rally with 32/33 Topix industry components trading in positive territory, with oil shares being the lone decliners. The Kospi index hit a new all-time high on gains in shares of Samsung and Posco Steel. The ASX 200 index is holding in record territory and above the 6,075 level after the Reserve Bank of Australia left interest rates unchanged. Leading gainers on the ASX 200 index include Wesfarmers and Coles Group on M&A speculation. Australian mining shares traded higher as copper prices rallied to a 5-month high. The Taiex opened at a 6-yr high and above the 8,000 level. The Hang Seng is higher by more than 0.60% and well above the 20,000 psychological level on gains in shares of China Mobile. Chinese stocks are currently trading mixed.

- Commodities: Crude oil is little changed after trading sharply lower in U.S. trading as recent developments between the UK and Iran calmed energy markets. Gold is also little changed on Iran and earlier USD strength due to a gain in pending homes sales. Crude oil is holding below $64.70, while spot gold is holding below $670. Shanghai copper continues to rally, tracking gains in the LME contract on supply disruptions in Peru and declining inventories.