The Euro led a risk currency charge higher overnight with the EURUSD pair breaking the upside of US$1.24 for the first time since early July. Rumor and innuendo continue to drive currencies with investors focusing on the possible ECB initiatives in the pipeline to bring down the borrowing costs across Europe's periphery. A well-attended Spanish debt auction gave the Euro further impetus to build on earlier gains, with the upside momentum forcing a further squeeze of short-side positioning which was exacerbated by light liquidity. The Euro rose to highs of 1.2490 and remains well supported around current levels of 1.2470.
The Australian dollar enjoyed solid support in the ensuing period of RBA monetary policy minutes and into early European trade with price action breaking the 105 US cent region. The release of the minutes set a key inflection point for the local unit but the momentum faded coinciding with a reversal from U.S equities which provided headwinds. As often the case, it was perhaps what was absent from the minutes which gave the local unit a burst of energy. Apart from a brief mention, the minutes failed to elaborate on the fundamental divergence between dollar demand and a decline in commodity prices, and more importantly if this divergence is classified as market dysfunction worthy of direct intervention. Markets have been well informed (courtesy of the recent Statement on Monetary Policy) of the "important risks" a high exchange rate may have on domestic conditions which softened the impact. Nevertheless, while acknowledging the risks to the domestic economy emanating from the Euro region and deterioration in the global growth prospects, the minutes were far from gloomy. The minutes noted tentative signs Chinese growth is "stabilising at a more sustainable pace," while recent interest rate reductions were beginning to infiltrate domestic conditions, in particular the housing market.
Why the RBA won't stand in the way of a rising Australian dollar
Local economic data on the docket today includes the Westpac leading index and DEWR internet skilled vacancies, both of which generally have little sway on short-term price action. While regional equity movements may provide the direction in domestic trade, the next top-tier event will be this evening's release of the FOMC meeting from the August 1st meeting, which is sure to attract the usual level of stimulus related conjecture ahead of the Jackson Hole summit on August 31.
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