Simon Smith, Chief Economist at FxPro, shares the performance of EUR/USD and AUD/USD, and further discusses on the key macro topics – inflation, QE and the Eurozone, in today’s Tip TV Finance Show, along with Zak Mir, Technical Analyst at Zak’s Traders Café, and Bill Hubard, Chief Economist at Bullion Capital.
AUD/USD: Turning?
Smith highlights a comparison chart of the AUD/USD and the ASX materials index from 2009 to present, and notes that the correlation suggests, the aussie is behaving less like a commodity currency, seeing divergence again.
The aussie is not longer so overvalued as perceived 3 years earlier. The dynamics are changing. Smith remains doubtful on the aussie being a China play, saying that the August slump in China didn’t see AUD react any significantly.
EUR/USD: driven lower by rate expectations
Smith outlines a chart comparing the EUR/USD prices with the 2-year swap differential, noting that the recent downmove relates well with the rate expectations.
On the ECB, Smith believes that the central bank acted very late with respect to policy, it already has a negative deposit rate, and cutting it lower further will be more problematic for banks and will start to mess up the financial system.
When questioned where the ECB would like to see the fair value for EUR/USD, Smith quoted that it would definitely be a level below the 1.04 lows.
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