RBNZ Intervention Weighs on Aussie Dollar | GO Markets Daily FX Commentary

• Aussie dollar slides on RBNZ intervention before finding support at $0.87;
• Mario Draghi wallow’s in the demise of Euro exchange rate in response to ECB action;
• Greenback bull’s march on as US data continues to tick all the boxes.

With no domestic data during yesterday’s early sessions, the Aussie took its cues from New Zealand neighbours where the RBNZ announced that they had sold $521mil in August in signs of intervention from New Zealand’s central Bank. Although not a sizeable move from the RBNZ, it does signal the central banks willingness to intervene in currency markets given their opinion that the Kiwi dollar trades at “unjustified and unsustainable levels” as we heard from Graeme Wheeler last week, in turn prompting a response from the New Zealand Prime Minister to suggest that $0.65 would be the Kiwi’s optimal level against the greenback. A broad sell-off in the Kiwi saw such sentiment feed into the Aussie dollar throughout much of yesterday’s Asian session, eventually finding support at $0.87 and recouping some of its losses overnight.

Whilst ECB members may be patting each other’s backs for their efforts in achieving a weaker Euro to assist in the bloc’s export competitiveness, their next big test is how to avoid a period of deflation as data this evening will likely show inflation slid closer towards stagnation in September. Combined with key CPI data from the currency bloc this evening, labour market data will likely confirm that Eurozone unemployment remained at 11.5% in August with Germany’s unemployment rate also flat at 6.7% for the same period. Even if data meets expectations this evening, Euro bulls are few and far between at present and traders are far more likely to favour defensive positions as we lead up towards the releases, particularly with the ECB’s policy meeting tomorrow.

As US economic data continues to surpass expectations, speculation that the Federal Reserve will lift interest rates continues to drive the greenback which continues to quash risk currencies and their relative attractiveness for the carry trade. As US data continues to tick the Fed’s boxes, with European neighbours favouring loose and accommodative policy, combined with light at the end of the tunnel for the end of QE in October, the dollar bull run continues with few willing to bet against it as dollar liquidity tightens next month. As dollar strength will inevitably impact on future GDP and inflation, it shouldn’t be ignored that the Fed may ramp up their rhetoric on currency competitiveness in order to achieve future growth and inflation targets, in a form of competitive devaluation of the US dollar. Only time will tell.