Global markets took a turn for the worse heading into weeks end as the lethal combination of political uncertainty and the void of encouraging US economic data weighed on investor confidence which was further dented by swooning oil prices.
G3 central bank’s policy will continue to influence currencies while US political uncertainty sounds a harsh tone for the Greenback.
RBA’s Debelle burst the AUD bulls balloon leaning heavy against the markets inference of the neutral nominal rate comment in an attempt to jawbone the currency lower. Aussie bears were quick to pounce driving the pair below .7900, but with the Greenback still labouring, bids held firm at .7875-80 .However, retracement momentum petered out into the weekend powered by positioning-led price action.
Traders have likely attached way too much emphasis on the RBA minutes which had dealers scrambling for topside exposure on the Aussie cores. The reality is the RBA was a reluctant rate cutter and never went as low as other central banks, so there is no need to follow the G-10 CB policy pivots just yet. Based on this view we could see a further washout of the short term long AUD positioning.Support comes in at .7875 ( Friday Low) but with a sagging Greenback, it’s best to express any Aussie negative bias through the crosses.
Ultimately the RBA are caught between a rock and a hard place. Even if they wanted to hike rates, the huge levels of household debt which put Australia near the top the household indebtedness world ranking’s would leave many unable to service their mortgage commitment.
This weeks focus will be on the key Aus domestic CPI, in the meantime, the ebb and flow of risk sentiment will show the way for the Australian Dollar
There has been very little backpedalling on the long EURO storyline as dealers continue to place much emphasis on Draghi declining the opportunity to talk down the currency post ECB minutes. And factoring in the expanding US political sinkhole which is weighing on broader USD sentiment, it’s unlikely the market has run out of steam. With more FOMO (the fear of missing out) likely to kick in, it’s odds on we test the August 2015 high of 1.1715 sooner than later.