The big news during the overnight session was a speech given by Reserve Bank of Australia (RBA) Governor Glenn Stevens. In which he noted that the current inflation environment in Australia would not hinder further interest rates cuts.
He added that “The recent decline in the exchange rate seems to make sense from a macroeconomic perspective” and that “it would not be a major surprise if a further decline occurred over time.” The comments increased speculation that the RBA will cut its benchmark overnight rate to 2.5% at its next meeting.
It was a very tough night for the Australian Unit, with the AUDUSD dropping a big-figure on the comments to multi-week lows just south of 0.9100. Losses for the Aussie were not limited to the USD, as the AUDJPY plunged below 89.00 to levels not seen since the beginning of 2013.
Meanwhile the AUDEUR broke support at 0.6900 trading in territory not seen since 2010. Other Dollar Bloc currencies also gained against the AUD, including the New Zealand Dollar which reached its strongest levels against its South Pacific neighbor since 2008!
Despite the large moves in Australian crosses, most other major pairs traded in fairly tight ranges, investors unwilling to risk being offside ahead of the FOMC and other central bank activity this week. The EURUSD tested resistance at 1.3300, a level it has been struggling with over the last few sessions, but was once again unable to hold its ground and has pulled back. After touching a 1-month low yesterday, USDJPY traded in a narrow range overnight also, the Yen unable to add to yesterday’s gains. Meanwhile the Cable was a touch softer overnight, on the back of some stop-loss related activity near 1.5300, however the move was muted in line with general market sentiment.
The USDCAD looks to be finding a base in the mid-1.02s, which is near support from a multi-month ascending channel. With oil prices coming off in recent sessions, the upside pressure is starting to increase for the USDCAD, as weaker petrol prices are a risk to the Loonie. Although, with that in mind, in the near term, oil prices will take a back seat to central bank activity and interest rates.
Key news out later this morning is American Consumer Confidence, which has steadily been gaining over the last 4 months. Expectations for today’s result are similar to last month’s 81.40. A better than expected print could favor the USD in the short term as it would lend to the idea that households are enthusiastic about future economic prospects. Which would in turn ease investor concerns that if the Federal Reserve trims its simulative programs too soon that the economic drag could derail the recovery.
Tomorrow is Fed Day, Bernanke and company will make their regular scheduled rate announcement. No interest rate changes are expected, but the accompanying statement will be carefully dissected and analyzed for guidance about Tapering.
Tomorrow also holds American and Canadian GDP numbers, with all the activity there is an elevated likelihood for volatility in the USDCAD. If you have short term needs, be sure to talk to your hedging specialist today to develop a proactive strategy.