Dollar Smoked After ISM, Onto the RBA

The market is hooked on the whims of US economic data with Fed tapering on the horizon. A soft ISM manufacturing reading Monday crushed the US dollar. Meanwhile, the Australian dollar had its best day of 2013, climbing nearly 200 pips ahead of today's RBA decision. Ashraf is on travel in the MidEast. A new edition of the Premium Insights will be released on Tuesday. EURUSD and 1 of USDJPY were stopped out, 1 of 3 AUDUSD are in progress.

The USD/JPY bulls were wavering ahead of the ISM manufacturing PMI and they cracked when the numbers were released. The index fell to 49.0 which is in contractionary territory for the first time since November and below the 50.7 expected.

The miss in the data was sizable but not incredible but it didn't matter to the market. Traders had grown overwhelmingly long the US dollar in May and everyone seemingly rushed for the exits at the same time. USD/JPY broke below 100 and then 99 to as low as 98.87.

Other USD moves were also dramatic. EUR/USD, which slumped to 1.2956 ahead of the data whipsawed traders and rallied to 1.3100. The Canadian dollar posted its best gain in a year with USD/CAD falling a fell cent to 1.0276.

Late in the day, USD/JPY and other pairs retraced some of the moves after a Reuters story suggested Japan's public pension could be planning to shift investments to riskier and foreign assets. In addition, a late gain in the S&P 500 sparked some USD buying.

The most impressive move of the day was in the Australian dollar, as it climbed two cents to as high as 0.9792. The RBA interest rate decision is at 0430 GMT and will be the highlight of the session. The statement after last month's cut didn't indicate that further cuts were imminent so expectations are low for any change.

Instead, the focus will be on comments about investment, the domestic economy and the Australian dollar. Any indications about further cuts could quickly reverse Monday's AUD gains.