• Aussie dollar once again climbs above $0.94 on weaker greenback;
• Sterling bounces off lows but bullish bets remain subdued;
• Mixed US data sparks greenback sell-off ahead of busy docket this week.
The Aussie looks set to continue trading within ranges that have been prominent for some time now, supported overnight by a weaker greenback. The local unit began yesterday’s Asian session on the back foot, however its fortunes turned as European markets opened and traders awaited data from the US. Australian new home sales data due for release this morning will likely provide some direction in the Aussie dollar in early trade, however markets will continue to trade cautiously ahead of key event risks commencing tomorrow evening.
Markets continue to remain cautious holding long positions of the pound after the UK currency has outperformed all major peers over the past 12 months. We have seen a reduction in institutional bets that Sterling can move higher, despite heightened inflation and reduced unemployment. Uncertainty surrounding wage inflation was noted in recent Bank of England minutes and combined with a slowdown in housing inflation, markets are uncertain of whether this will set-back a potential rate hike in the near term. A number of institutions including Barclays and Deutsche are calling for a rate hike of 25 basis points in Q4 2014 and a further 25 points in Q1 2015 to take rates to 1.00%, however these forecasts are on the bullish side of all estimates.
Mixed US data overnight saw the greenback slide against most peers. Pending homes sales somewhat disappointed and added to a string of mixed housing data in recent weeks and gave markets some conviction to trade ahead of a busy docket this week. After such a shock weather related US GDP reading for Q1 of -2.9%, it is unsurprising to see markets trade cautiously ahead of tomorrow’s GDP data and Fed meetings. EURUSD bounced 0.1% from recent lows and may provide an entry point for dollar bulls ahead of highly anticipated data this week, however any signs from the Fed that policy is to remain loose for longer could put an end to recent greenback support.
[B]Tom Williams
Sales Trader[/B]