• Aussie dollar remains firmly anchored to $0.93 ahead of busy docket this week;
• Uninspiring European data saw Euro plummet against firmer greenback;
• Greenback remains in favour as data points towards tighter monetary policy.
The Aussie dollar traded sideways for much of last week, holding onto $0.93 with a tight grip as we approach a busy economic calendar this week. Capital expenditure data late last week saw the buyers step in as data indicated that the Australian economy is sufficiently transitioning from mining led investment, however gains were short lived with the Aussie struggling to break monthly highs. There is a sense that the Aussie dollar is sitting comfortably around these levels, however it has to break recent trading ranges at some point and we may see that this week. An uplift in the Aussie was certainly warranted after last week’s capex, however Q2 GDP data due for release this week will only take into consideration equipment, plant and machinery investment which actually declined 0.9% in the quarter. This week will likely set the record straight.
Data from the UK was scarce last week and we saw a distinct lack of conviction in Sterling volumes as a consequence. Its European neighbours once again stole the headlines and we saw the Euro trade with a spring in its step at one point as markets slashed bets of the ECB announcing QE at this week’s meeting. Despite seeing the Euro trade over $1.32 after a small flurry of buying activity, resistance was soon met and EURUSD trajectory remains firmly towards the downside. Inflation data from the troubled currency union read weaker again on Friday evening as CPI slowed to 0.3% in August. Declining for a seventh straight week against a well bid greenback, net shorts in EURUSD now stand at the highest level since 2012 as institutional traders continue to see further downside.
A surprise drop in consumer spending from the US on Friday evening wasn’t enough to put a halt to greenback strength with subsequent manufacturing and consumer confidence readings surpassing analyst expectations. Despite some stronger data from the US early last week, it was clear that dollar gains would be limited last week and we saw profit takers step in towards the end of the week. Still, as we head into a busy week of central bank meetings and data releases, greenback support is likely to prevail as markets remain convinced that tighter monetary policy from the Fed is forthcoming. A string of European data due for release ahead of Thursday’s ECB rate decision may inspire some buyers around current levels, particularly if the ECB decide to hold off on QE for another month, however few would doubt that traders will be selling into any Euro strength.
[B]Tom Williams
Currency Analyst[/B]