Twice this morning EUR/USD has tested 1.4300. So far the EUR has failed to hold above this level with the slightly softer tone of stock markets in Europe draining some of the enthusiasm for risk and pushing EUR/USD back to the 1.4270 area. In Asian hours, the day belonged to the AUD. Comments from the RBA Governor Stevens that ''upside risks balance downside risks'' cemented the view that the next rate move by the RBA will be a rate hike. The AUD extended its gains into the London open with AUD/USD hitting highs just shy of 0.8340 before meeting resistance. AUD/JPY hit 79.29 before the JPY found buyers on the softer tone of stocks.
AUD/USD reached levels this morning not seen since last September as the RBA's Stevens suggested that Australia's downturn may turn out not to be one of the more serious of the post war era. These remarks corresponded to the publication of Australian Q2 business confidence which registered a retreat to levels not seen since before the collapse of Lehman. Technically Australia has avoided recession.
Fiscal and monetary stimulus has supported the economy but Australia's proximity to Asia has also been playing a part. Last night Steven's acknowledged that China will continue to offer opportunities. Many countries in the Asian region including China and Korea have recently published strong GDP data for Q2. Today, the Reserve Bank of India edged higher its growth forecast for the present fiscal year. The CAD and NZD were dragged higher vs the USD on the back of the move in the AUD, though the release of the NZ Jun trade data was a disappointment. The RNBZ meeting is on Thursday, last month the RBNZ forecast that growth would not return to NZ until the end of this year.
EUR/GBP has traded sideways this morning, cable edging a touch higher in line with EUR/USD. The CBI have reported a weak month for retailing in July which will take the wind out of last week's better than expected official retail sales release for June. A poor outlook for August is also projected. Tomorrow, the BoE will publish lending data. A weak set of data will keep alive talk that the BoE may not yet close the door to QE and could weigh on the pound.
This afternoon the market will be watching another set of US housing data in addition to the July consumer confidence data and the Richmond Fed manufacturing index. Stock markets will continue to be closely followed and set to remain the key determinant in whether EUR/USD can hold above 1.4300.
