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AUD/EUR pair reaches all time highs before softening.

Written by Sam Coxhead on July 29th, 2011.      0 comments

1:45 PM (NZT) The AUD has been in demand since Wednesdays higher than expected inflation number caused the interest rate market to reassess their expectations from the RBA. Over the previous few weeks pricing has suggested a reasonable chance of a cut to the cash rate over the coming months.  But this .9% 2nd quarter inflation number has reversed the tone and now pundits are calling for a hike of 25pts to 5.0% at next week’s RBA cash rate review. ANZ has called for a hike next week. The RBA also have their quarterly Monetary Policy Statement on next Friday, and will give them ample opportunity for them to communicate with the market.
On the EURO side of the ledger, it has been a mixed bag. The EUR has rallied against the US dollar for most of the week as the focus was on the US debt ceiling debacle. Then in the offshore session last night the focus came back on Europe as the details of the extended bailout plan for Greece started to emerge. The “post EU summit” euphoria has run out and the yield on the Europe zone Govt debt markets started to rise and this saw the pressure came back on the EURO. This debt situation is going to be at play out to the medium term, so this did not really come of too much surprise.
So as the week has unfolded the AUD has seen strong appreciation over the EUR to reach a peak of .7732 before drifting back toward the current levels. That high of .7732 is the same level of the peak that was seen over the new year and is the all time highs. The current interbank price is .7680. Support levels are .7660 initially and then down towards .7570.The topside resistance is obviously the all time highs at .7730.
Needless to say that current levels represent great value buying of EUR with AUD. I expect that we will see some sideways price action as we run into the RBA meeting next week.