The Aussie dollar broke ranks with its risk counterparts, with the AUDUSD pair remaining well supported, despite moderate losses from the Euro, Sterling, CAD, and Kiwi. This divergence has been particularly apparent against the Euro with the EURAUD pair falling to new euro-era lows of 1.1652 late yesterday. Although solid, the Aussie’s performance against the greenback failed to reflect the same enthusiasm, with the pair unable to overcome selling pressure just above 105-figure, however, remaining well bid in a very tight 25 pip range throughout much of the session.
The recent resilience of the Aussie dollar has surpassed most expectations, but it’s clear its strength in recent sessions has been built on a foundation of easing expectations from the Euro area and the United States rather than a meaningful rally governed by healthy data points. Although we consider the AUDUSD pair overvalued from a longer-term perspective, it’s also important to take heed to some potential game-changers from both Europe and the U.S which can materially shift short term price action. ECB President Mario Draghi has vowed “to do whatever it takes” to preserve the union and this was echoed by German Chancellor Angela Merkal and French President Francois Holland. We consider this an upgrade from previous verbal attempts to inspire confidence. On the assumption that the ECB will at least appease markets and follow-through by “doing whatever it takes” and likewise the Fed at-least keep the dream of further quantitative easing alive – market’s have responded in kind and remain at a good vantage point to extend these gains should the opportunity present at the respective policy meetings.
Locally, mid-tier releases today such as private sector credit and building approvals may provide some immediate noise, but ultimately the overall direction for the Australian dollar and commodity bloc currencies in general will come from abroad, with the ECB and FOMC meetings representing a fork in the road for global markets.
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