• RBA’s positive domestic outlook encouraged Aussie to move higher;
• Eurozone inflation falls short of expectations yet again ahead of ECB meeting tomorrow;
• Sterling and greenback supported whilst markets focus on Central Bank meetings.
A relatively busy day of local data yesterday saw the Aussie move higher in early trade as retail sales data was generally in line with expectations and trade balance data was viewed as positive. The RBA’s rate decision in the afternoon was to be the key event for the day and any hints of the economic outlook were closely scrutinised. As expected, there was no change made to underlying interest rates, however markets gained confidence from the Reserve Bank’s economic outlook stressing that rates are likely to remain on hold for a sustained period of time despite recent weakness in economic data. Comments moved the Aussie to intraday highs of 0.92864 against its US counterpart.
Eurozone inflation data released yesterday evening did little to inspire markets that the inflationary outlook is becoming more positive, data revealing yet another missed forecast and confirming that unconventional measures of monetary policy are certainly a possibility in tomorrow’s ECB meeting. Despite such weakness, the Euro failed to succumb to pressure as markets are becoming wary whether the ECB be aggressive enough to spark a sell-off in the Euro and suggesting that any change in monetary policy is already priced in. It is unlikely that Mario Draghi will use all measures available to him immediately and more likely that additional tools will kept hidden until a later date.
Sterling managed to move gradually higher yesterday afternoon as house prices were revealed to have risen once again in May driven largely by property in South East England. The greenback managed to maintain pace with little change in cable throughout the day. It is becoming increasingly evident that there is only one key catalyst in financial markets this week and traders remain tentative ahead of Thursday’s meetings. Locally, Aussie GDP data at 11:30 AEST is likely to cause a wave of activity in today’s session, but Eurozone GDP this evening will steal the limelight.
Thomas Williams