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Whats happening to the AUD EUR exchange rate? Not much!

Written by Sam Coxhead on August 18th, 2011.      0 comments

4:15 PM (NZT) This weeks price action has been in stark comparison to the previous two, with very limited volatility so far. The range has been in the AUD/EUR .7231-.7325 (EUR/AUD 1.3650-1.3829)  until the time of writing.
The realization over the last two week’s that the global growth profile will likely be lower than forecast earlier this year remains unaltered this week. The economic data has been patchy at best around the globe. In Europe the GDP number was lower than expected, and was lead by lower growth in the powerhouse of Germany. Interestingly this has had limited impact on the EURO, as it has been supported by a couple of different factors. Firstly, the difference in funding costs of Spain and Italy compared to the benchmark of Germany has contracted. Last week’s efforts (ongoing this week) of the European Central Bank (ECB) to stem the debt contagion , by buying under pressure bonds has paid off, and has been EURO supportive. Secondly, the efforts of the Swiss National Bank to curb the strength of the wildly strong Swiss Franc has seen it intervening in the Forward EUR/CHF markets, in effect they are selling CHF and buying EUR, and obviously this also supports the EURO.
On the AUD side of the equation, the main news for the week has been the release of the Reserve Bank of Australia(RBA) monetary policy meeting minutes. Whilst these minutes were made before the rampant volatility of the 10 days preceding this week. The intimated that the RBA would have probably hiked the cash rate has the global outlook not be looking so uncertain and sluggish. This is in stark contrast to where the Australian interest rate market was, and is, pricing the Australian cash rate in the coming months. Prior to the release of the meeting minutes the market had around 130pts of easing price before the end of the year, subsequently this has been reduced to around 100pts today. There is still further room for these priced easings’ to be reduced further. Less easing in the cash rate is AUD positive and this has helped counter the positive factors providing support for the EURO. Also a potential impact is the news that SAB Millar, the US company, are looking at buying the Australian company the Fosters Group. Whilst this deal has not been done, and there are many ways to structure a deal such as this, potentially there is demand for around 9.5billion of AUD to be bought. In the illiquid market conditions currently at play, this would certainly have an impact of the AUD appreciating across the board and against the EURO is no exception.
In terms of price action from current levels. On the down side we have initial support at .7200 (EUR/AUD resistance 1.3890) and .7100 below (EUR/AUD 1.4085 above). In terms of resistance for the AUD/EUR we have an initial target of .7350 (EUR/AUD support 1.3605), and .7450 above that (EUR/AUD 1.3423).
The current AUD/EUR rate is .7299 (EUR/AUD 1.3700).