Australia’s central bank kept its key cash rate unchanged at 4.75% after its meeting finished overnight. The announcement was widely expected following a pre-emptive hike last month. Markets now expect the central bank to leave rates on hold for a few months to come. In making its statement, the RBA referred to the volatility in markets as a result of concerns about the creditworthiness of a number of European governments. It also focused on the fact that the Chinese and Indian economies have continued to grow strongly, while more developed economies were showing more modest growth. In terms of the Australian economy, the terms of trade are at their highest level since the early 1950s, and national income is growing strongly as a result.

Meanwhile, private investment is beginning to pick up. In the household sector, there continues to be a degree of caution in spending and borrowing, which has led to a noticeable increase in the saving rate. However, employment growth has been very strong and growth in wages had picked up somewhat. The exchange rate has risen significantly this year, reflecting the high level of commodity prices and the respective outlooks for monetary policy in Australia and the major countries. This will assist, at the margin, in containing pressure on inflation over the period ahead. Over the next few quarters, inflation is expected to be little changed, though it is likely to increase somewhat over the medium term if the economy grows as expected.

Looking back at the European trading hours, the euro has traded in a relatively tight range versus the dollar over the past 24 hours, finding some support in concerns about whether or not the US central bank will further extend its support to the economy. At the same time, moves to the upside are limited by ongoing concerns about the creditworthiness of euro zone periphery economies. EU finance ministers are due to continue their two day meeting today, with markets disappointed that the meeting has so far resulted in no new steps to quell the debt crisis, though the debate about a common European bond seems to have picked up some pace.

Today’s main event, however, will be the release of the detail of the Irish budget for 2011, which is likely to receive plenty of international as well as domestic attention. We already know the broad outline from the four year plan, with fiscal tightening of €6bln (3.7% of GDP) planned. Two thirds of this tightening is in the form of spending cuts, with one third from higher taxes. Today, however, will provide the exact details in terms of the taxation measures and spending cuts that lie ahead for the coming year.

The dollar meanwhile, fell to a three week low versus the yen in overnight trade, dragged down by talk that the Fed may conduct further bond purchases. Last Friday’s disappointing US non-farm payrolls report is also weighing on the USD. Sterling, meanwhile, edged higher versus the dollar yesterday, as the focus remains on euro zone debt issues. The single currency, however, remains well off last week’s lows. UK data of note today include the industrial production report for October, as well as the NIESR GDP estimate for the three months to November. Overall however the market presents a good opportunity for any Euro or US Dollar buyers with a requirement soon approaching.