Euro climbs vs dollar
By Peter Rosenstreich
A flattening of the US yield curve and political disruption has liquidated the overbought USD. EUR/USD has recovered towards 115.30, indicating an end to unbridled greenback strength. US interest rates would need a significantly hawkish shift (which we don’t anticipate) for repricing of the curve to get further ahead. Sentiment in Europe has shifted from last week’s doom and gloom to a more positive outlook (welcome to summer trading). Traders shrugged off news that Moody’s would delay conducting Italy’s review, which is clearly warranted. This could have a bigger effect when the review is released. For now, it highlights markets’ ignorance as bliss. Europe celebrated Greece’s completion of its three-year euro zone emergence loan program worth $70.8 billion. While the immediate result is good, the long-term outlook remains very uncertain. With crushing public debt at 180% of GDP, and no incentive for European creditors to put Greece’s economy on solid footing.
Aussie optimism
By Vincent-Frédéric Mivelaz
The Reserve Bank of Australia confirmed in its August Meeting Minutes that it is not expecting to raise its Official Cash Rate, given at 1.50% since 8 February 2016. The RBA sees improvement in unemployment, income growth and inflation. Inflation and unemployment forecasts are estimated at 2.25% (2018: 1.75%) and 5% by 2020. Current monetary policy should continue to support growth. However, recent drought conditions affecting crop harvests is a serious factor to monitor, as farm output and export forecasts are reduced. Additionally, uncertainties surrounding US trade policies remain a serious impediment. The Aussie was little changed. Currently at 0.7358 USD, the AUD/USD pair is expected to strengthen, heading along 0.7370 in the short-term.