The Australian dollar jumped higher on Friday as European leaders finally made headway in unifying the European banking sector and working towards calming the area’s debt crisis. What has been seen as a major step forward in soothing markets worldwide has seen our risk sensitive Aussie rally over 2 cents since Friday morning and on Asian open today we trade with the Greenback at 1.0260. Minor data in the Melbourne Institutes’ inflation gauge will leave the Aussie trading with risk sentiment in the short term although focus will shift back to local shores tomorrow with the RBA meeting highlighted as a key event.
Most currencies were relatively unchanged overnight ahead of major central bank meetings and key data releases later this week, but as stated above, despite pretty quiet conditions, the AUD found a way to edge higher again.
We expect a range today of 1.0170 – 1.0270
New Zealand Dollar
Relief following the EU summit has seen risky assets soar and the New Zealand dollar has rallied from levels below 79 cents to open this morning at 0.8000, after touching nearly 2 month highs near 0.8040 late Friday night. With a series of crisis fighting measures finally being announced by European leaders, focus now turns to the details as well hopeful stimulus action from the ECB later this week. A quiet week on the New Zealand economic calendar leaves the Kiwi exposed sentiment surrounding Europe and movement against the Aussie will also be directed from offshore with the RBA meeting tomorrow the short-term focus; the NZD/AUD trades this morning at 0.7810.
We expect a range today of 0.7960 - 0.8060
Great British Pound
Amongst the excitement of the EU summit on Friday, the Bank of England governor Mervyn King was urging his own banks to shore up their capital to protect themselves from the volatility stemming from Europe. The Pound touched session lows of 1.5580 early on in local hours although it was risk-on trade that dominated and Cable rallied to one-week highs above 1.5700, still holding at 1.5680 at time of writing this morning. The risk driven Aussie and Kiwi dollars shone on the cross rates and previously mentioned weak PMI pushed GBP/AUD to 1.5300 and GBP/NZD to 1.9580. The Bank of England gather later this week for their monthly monetary policy meeting , although markets today will be watching for manufacturing PMI in an attempt to gauge the health of the UK economy.
We expect a range today of 1.5250 – 1.5380
Low expectations for the umpteenth EU summit were beaten on Friday and previously sceptical markets rallied upon the developments. The euro dollar specifically jumped around 1.8% in total as talk about unified banking in Europe gained traction; an agreed deal will now allow banks to receive funding directly from the proposed European bailout fund, alleviating their respective governments of the debt burden and reducing sovereign bond yields. Also supporting markets was the removal of a preferred creditor label for governments, making bond investments less risky for the private shareholder. All combined, the euro finished up and opens this week at 1.2670 as focus now turns to the ECB meeting on Thursday where expectations are for the central bank to now support these moves with monetary easing measures of their own; the sharp rally in risk also saw heavy flows out of the Greenback and Japanese Yen, the pair themselves moving up to 79.90 as of the Asian open this Monday morning.
AUD: MI Inflation Gauge m/m; Commodity Prices y/y
NZD: No data due for release
JPY: Tankan Manufacturing Index
GBP: Manufacturing PMI
USD: ISM Manufacturing PMI; Construction Spending m/m
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