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Thoughts on the AUD/EUR pair

Written by Sam Coxhead on July 6th, 2011.      0 comments

3:42 PM (NZT) The AUD/EUR has continued to grind higher for the most part over the last week. The current interbank price is .7417 and is closing in on resistance between .7430 and .7450. This has been a significant bounce since the lows of early last week at .7300, when the EURO bounced back as it became clear that the Greek austerity votes would pass.
Yesterday’s Reserve Bank of Australia statement accompanying its unchanged cash rate decision was not totally unexpected, but the tone was more negative than some market participants expected and this saw some initial weakness from the AUD. This weakness has been balanced out by the overnight move by credit agency Moody’s to downgrade the Portuguese credit rating to Ba1, which is junk bond status. This further emphasis on peripheral member debt has proven to weigh on the single currency. As long as these debt issues continue to simmer in Europe, the AUD will remain in demand over the EURO.
The rest of the week will surely prove to be an interesting one. The Australian Employment numbers are due tomorrow ahead of the European Central Bank(ECB) decision on the cash rate. If we see the Employment growth in Australia start to soften, the Reserve Bank of Australia will gain further breathing room in terms of cash rate hikes throughout 2011 , and this would be AUD negative. The ECB is expected to hike the cash rate from 1.25% to 1.5% as persistent inflationary pressure remain in the Euro-zone. This is currently priced into the EURO and any reaction will come from the accompanying statement issued.
The AUD/EUR remains with its broader .7200-.7550 range that we have seen for the last three months, expect resistance to the topside at .7450 and .7525 , and downside support at .7300 and then firmly at .7200.