Testing the Aussie

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EUR: Just German Factory Orders data released today.  This is not a major one for the euro, but could knock the singe currency if weaker than expected. Market looks for 0.5% MoM fall after 2.3% gain last month. See how to trade the figure with EUR/USD.

NZD: The Central Bank head Wheeler is due to speak at 21:05 GMT this evening, with the NZD seeing further strength recently and at a 2.5 year high vs. the Aussie dollar.  The market will be sensitive to any hints of concern from the central bank.

Idea of the Day

The Australian central bank cut its benchmark rate by 0.25% to 2.75% overnight in a move that was not fully anticipated by markets.  What sealed it though was the recent inflation data, which came in softer than expected, this coming against the background of a continued strong currency and a mining sector having to adjust to slower growth in its main export destination, China.

It’s clear that they are a little frustrated that the Aussie is not lower, given the developments on the domestic economy in recent months.  The initial reaction took AUDUSD to a low of 1.0178, with the next key focus being the lower of the year at 1.0115. It’s remarkable just how much the Aussie has been tied to a broad 1.01 to 1.06 range for the past ten months now, but this is likely to face its strongest test over the coming weeks.

Latest FX News

JPY:  The gains on USDJPY seen in the wake of the US employment report on Friday have largely remained intact, with the yen trading above the 99.00 level for the most part since Friday.

USD:  As we pointed out last week, the dollar’s correlation with data surprises has been falling, so gaining less on stronger than expected data.  The 3-month correlation of the dollar index to data surprises (index rising on stronger than expected data) has fallen to zero, from as high as 0.66 in March and having traded in negative territory for the second half of last year.

AUD:  A surprise rate cut from the RBA (cash rate cut from 3.00% to 2.75%), taking AUDUSD from 1.0240 to a low of 1.0178.  AUDNZD was pushed below 1.20, a two and a half year low. More:  AUDUSD: Break of 1.0220 Support After RBA Puts 1.0100 In Play-Elliott Wave

EUR: The euro held steady for most of the Monday session, until we saw comments from ECB head Draghi who said the central bank would be looking at the data in coming weeks and were “prepared to act again”.  The euro was knocked 50 pips lower to just above 1.3050, but has since recovered the majority of those losses.




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