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Rampant AUD continues higher on CPI increase

Written by Sam Coxhead on April 27th, 2011.      0 comments

11:45 AM (AEST) The USD remains under considerable pressure at stop loss buy orders were triggered in the AUD/USD and EUR/USD, pushing the currencies higher. The AUD has reached a new peak of 1.0823 (pre-CPI) in early Asian trade, after it managed to overcome the large barrier option related resistance at 1.0800. US equities finished the session near three year highs as positive corporate earnings results continue to flow in the US. This has pushed the “risk on” bias to continue in Asia with the Nikkei opening up over .75%, and the currencies pressing higher triggering the stop loss buying.
The NZD/USD has also pushed on to reach a high of .8102 so far. Just released the NBNZ Business Confidence Survey showed an overall bounce back in confidence of 14.2 from the last reading of -8.7 after the Feb 22nd earthquake. This improvement is up a substantial 23pts from March. The import “own expectations” component of the survey was strong also , showing at 15pts jump back to a net 30% of those surveyed expecting improvements for their own businesses over the year ahead.   
Whilst momentum continues to look strong for the currencies, I cannot help but think that the market is ripe for a sharp correction back to USD strength. US Treasury Secretary Geithner was on the news wires overnight commenting that it is in the interest of the US to have a strong dollar. These types of comments have not been made for quite some years and given that we have the Federal Reserve taking a new step in holding a press conference after their monetary policy statement later on today, there is a possibility that a change of stance is on the cards. The EUR/USD has been the standout performer to my mind given that the Euro-zone seems to have structural problems to my mind. In the event of the Greek debt default, which now seems unavoidable, you have to think that the EUR will see some selling pressure. The complicating factor with this is the persistently high price of oil, which historically has an inverse relationship with the USD. Tensions in the Middle East/North Africa region seem to be escalating, and this may mean a USD resurgence is put off for a time yet. Food for thought at any rate.
Meanwhile just released Australian CPI figures show that inflation rose at a pace of 1.6% for the quarter against an expectation of a 1.2% increase. This has seen the AUD leg again higher and has a new high of 1.0853 against the USD at the time of writing. The NZD has given up a good portion of the gains it made against the AUD in the wake of the Business Confidence survey. Evidence of the heavy AUD buying against NZD came be seen by the fact that the NZD has given up growth against the other currencies since the number. Short term interest rates have moved 8-10pts higher across the curve in reaction to this, pushing the interest rate differentials higher once again.
          Last 24 hours trade
  Current level Pre-AU CPI Chge since AU CPI   Low High
NZD/USD 0.8085 0.8099 -0.2%   0.7977 0.8102
AUD/USD 1.0853 1.0809 0.4%   1.0678 1.0853
NZD/AUD 0.7452 0.7492 -0.5%   0.7458 0.4799
AUD/NZD 1.3419 1.3347 0.5%   1.3334 1.3408
NZD/GBP 0.4900 0.4902 0.0%   0.4844 0.4908
NZD/EUR 0.5507 0.5510 -0.1%   0.5485 0.5518
NZD/JPY 65.83 65.95 -0.2%   65.59 66.05
NZD/CAD 0.7693 0.7693 0.0%   0.7648 0.7706