The latest RBA minutes suggested no imminent rate cut, lending some long-awaited support to the beleaguered Australian dollar and sparking a relief rally in the AUDUSD and other Aussie crosses.
The US dollar (USD) strengthened against both the euro (EUR) and British pound (GBP) today as the data from Europe disappointed, but the Australian dollar (AUD) saw some relative strength after the release of the Reserve Bank of Australia (RBA) minutes suggested little possibility of another rate cut in August.
The RBA minutes essentially reiterated the central bank’s recent views, stressing that the Australian dollar has remained too strong and noting that mining investments are close to or past their peak. However, the Australian monetary authorities stopped well short of suggesting that they were considering yet another rate cut in August in order to stimulate the economy.
The RBA stated, "Given the exchange rate adjustment that was occurring, and with the substantial degree of monetary stimulus already in place, members assessed the current stance of policy to be appropriate for the time being." As a result, the AUDUSD rallied in relief, breaking above the .9200 level in mid-morning European trade.
The unit has been on a one-way trip lower for the past several months, but it has recently found some support ahead of the .9000 level and has now stabilized somewhat. Today's news is likely to act as further support for the pair and should strengthen the Aussie on the crosses, especially against the euro, where it was once again nearing yearly lows.
Slow Data Weighs on Euro, British Pound
The euro, meanwhile, came under some selling pressure after the German ZEW survey printed a bit weaker than expected. ZEW came in at 36.3 versus 39.8 expected, but economic sentiment improved to 32.8 from 31.8 forecast. The news helped to push the EURUSD pair towards the 1.3050 level after it failed once again to take out the 1.3100 barrier.
In the UK, the latest CPI data printed slightly slower than expected, coming in at 2.9% versus consensus estimates for 3.0%. The biggest downward pressures came from air transport and food. Still, with oil prices rising, input costs are likely to exert pressure in the months to come, and that could reverse the generally declining trend in UK inflation.
Nevertheless, GBPUSD fell in the aftermath of the release, dropping to 1.5050 from 1.5120 as traders quickly assumed that lower inflation data will give the Bank of England (BoE) more scope to ease in the foreseeable future.
2 US Economic Reports Due Out Today
In North America today, the economic calendar remains light with only CPI and industrial production on the docket.
Monday's surprisingly weak US retail sales data took the wind out of the dollar rally, and if today's CPI data shows that inflation remains tame, the greenback could see further weakness as the day progresses with USDJPY continuing to test support at the 99.50 level.
By Boris Schlossberg of BK Asset Management