• Aussie climbed higher throughout the week as markets favour higher yielding assets;
• ECB rate cut in focus as markets assess implications;
• US non-farm payrolls surprised to the upside, 217k new jobs created in May.
In a week that was largely dominated by news from the Eurozone, the Aussie came out on top, recouping all losses from early in the week to close comfortably above 93 US cents. Losses caused by weak building approvals on Monday were eventually erased after the outcome of the RBA rate decision was viewed as positive, policy makers citing that rates are to remain on hold for a sustained period of time despite recent weakness in local data. Wednesday’s local GDP surprised to the upside sending the Aussie immediately higher, however real focus was on the ECB’s next move in how to tackle falling inflation. News of the ECB’s decision to cut rates to record lows seemed to favour higher yielding currencies with the Aussie breaking back through 93 US cents, only to fall back slightly amid broad greenback strength.
As was widely expected, news from the ECB’s rate decision meeting stole the show last week, however lacked the vigour that many had anticipated. As it was announced that the ECB are to reduce interest rates on deposits to -0.1% and a €400 billion loan facility for European banks, the Euro initially collapsed, however such weakness was short lived. As news was digested, markets debated whether the ECB had done enough to tackle weakening inflation and whether the actions of Mario Draghi could weaken the Euro to export friendly levels. Markets decided no. Losses were quickly erased as traders failed to identify how ECB policy would be of detriment to the exchange rate with many of the opinion that the ECB could have done more. Still, Mario Draghi has made it clear that there are more strings to his bow and recent policy changes may have been a test as to how markets would react.
Friday’s US jobs report revealed that the effects of extreme winter weather may finally have passed, the US creating 217k new jobs in May, 2k more than expected and the unemployment rate holding at 6.3%. Despite little surprise to the upside, the report confirmed that US interest rates are likely to hold and the rate at which bond purchases and reduced will be maintained. Today’s sessions are unlikely to prove eventful with little direction from the UK, US or Europe and flow likely to stem from last week’s events.
[B]Tom Williams[/B]
Sales Trader