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EUR/AUD – Headed for 1.55?
The euro traded lower against the U.S. dollar today on the back of cautious comments from the ECB and weaker industrial production. Everyone from ECB President Draghi to members Praet, Coeure and Villeroy all felt that inflation is low and therefore policy needs to patient and persistent because the currency’s strength could drive prices even lower. The uniformity of the central bank’s comments make it clear that they are in no rush to change their forward guidance. Meanwhile the Australian dollar traded higher on the back of stronger consumer confidence, faster Chinese industrial production growth and positive comments from the Reserve Bank of Australia sent the currency sharply higher. According to RBA Assistant Governor Kent, the “good growth we’re seeing, the low levels of spare capacity….raise the risk that inflation pressures will pick up.” He also felt that “markets may be underpricing the risk of faster growth.” As these are the most hawkish comments that we’ve heard from an RBA official, it was no surprise to see the big reaction in the Australian dollar. Fundamentally, the dovishness of the ECB should cause the euro to underperform AUD further.
Technically, EUR/AUD has found itself back below the 20-day SMA. Although there’s quite a bit of support above 1.56, we believe that the pair could start to move lower with a break of 1.56 paving the way for a steep decline to the 100-day SMA near 1.5485.