The Reserve Bank of Australia is trying its best to keep the currency devalued to heat up the economy, leaving the key rate unchanged at 1.5% on Tuesday. A 5% strengthening of the Aussie during the last three weeks, mainly due to the weakening of its US counterpart, has led AUDUSD to a more than two-years peak, turning into an unpleasant surprise for the RBA.
In the report, the regulator complained that a strong currency could frustrate plans to revive the economy and negatively affect the employment and output. It is clear that the RBA will continue to make efforts to weaken the national currency, but where the growing US pessimism will lead the greenback remains a mystery. In any case, the dynamics of AUDUSD indicate that investors are not ready to go against that and intend to “cooperate” with the RBA by adding short positions to normalise the exchange rate. The pair tested resistance at 0.8050 at the beginning of the Asian session, before falling to 0.7980, continuing to develop a corrective scenario.
The European economy continues to act flawlessly, utterly justifying leveraged longs on the euro. GDP accelerated to 2.1% in the second quarter, coinciding with expectations. Production activity in the region slowed slightly but continued to expand at an excellent pace, with the PMI index for July coming in at 56.6 points. The economic recovery in the euro area seems to remain tepid so far, due to the appreciation of the currency and it is logical that the euro will continue to grow until it is stopped by weaker economic data.
The ECB may relax as the economy is moving forward, though inflation has not yet reached the target level, so the current level of interest rates is comfortable. EURUSD will undoubtedly continue to climb, although today’s data on consumer spending in the US will be able to provide some relief for the US dollar that is crushed by political uncertainty and Fed’s soft stance.
In the UK, two days before the Bank of England’s meeting, macroeconomic statistics provided the market with a valuable clue about what to expect from Mark Carney. Orders for exports rose to a seven-year high, while the corresponding activity index (Factory PMI) rose to 55.1, surpassing expectations. It was on exports that BoE doves have been betting on, predicting that the growth of export orders would successfully offset the decrease in consumption. Obviously, the Bank of England’s meeting on August 3rd will be “purely dovish” and will probably slightly pull the pound back to the level of 1.30 – 1.31.
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