Aussie Rises as EUR/AUD Breaks 1.2000

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Australian consumer confidence soared to a 5 month high helping to lift Australian dollar well above the 1.0200 level in Asian and early European trade. the index advanced by 3.7% to 99.1 – its highest level since February as the accomodative monetary policy of the BA appears to be making an impact on consumer demand.

RBA has cut 125 basis points off its benchmark rate since it began its easing campaign and Australian home owners, most of whom carry variable rate mortgages have clearly benefited from the reduction in debt service costs. Amongst mortgage holders, confidence increased by 5.5%, suggesting that the RBA policy is making its mark.

Later today Australia reports its monthly employment numbers and that release could determine if the RBA will cut rates further at its meeting next month. Markets are anticipating a very modest increase of 0.3K versus 38.9K gains the month prior. If the data prints in line or lower, chance are good that the RBA will reduce rate further. The swap markets are pricing in a 74% chance that the RBA will lower rates by 25bp to 3.25%, but those odds may change if the labor data proves to be stronger than forecast.

Meantime the Aussie has risen to session highs of 1.0240 eyeing the 1.0250 level as risk appetite has improved in the early European session. The unit has benefited from continued selling in EUR/AUD as investors rotate away from the euro. That cross has broken the key 1.2000 barrier and continues to drift lower as the day progresses.

Boris Schlossberg
Managing Director

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