It’s an important week for EURAUD, with monetary policy meetings at the Reserve Bank of Australia and the European Central Bank and the release of important economic data out of Australia and Europe. The RBA is due to make its monetary policy decision and release its accompanying statement at 1430AEST, before the ECB’s meeting this Thursday, which both have the potential to weaken EURAUD. This week also sees the release of important PMI, trade, retail sales and other data out of Europe and retail sales and trade figures out of Australia.
In Australia, we aren’t expecting the RBA to alter the cash rate, neither is the market for that matter, but the bank’s accompanying statement will be closely scrutinized for the board’s opinion on Q4’s surprisingly strong inflation figures and the recent fall in the Aussie dollar. Is this going to be enough to cause the RBA to remove its dovish bias? Given the weakness in parts of the Australian economy and the need to prevent a rally in the Aussie, it’s unlikely the RBA will completely remove its easing bias today, but we do suspect the overall tone of the statement will be more neutral than at prior meetings and the board may be more comfortable with the value of the Aussie after its recent fall. This could set the stage for some limited AUD gains. It worth keeping in mind that the bank may fire another verbal volley at the Australian dollar, but the market is expecting this and it’s nothing new.
In Europe, the ECB is also concerned about inflation, but for an entirely different reason. Recent CPI data out of Europe was soft at 0.7% for January, which could be considered uncomfortably low. At its last meeting, the central bank stated that it would take action if inflation fell substantially from here. While the 0.1% drop in January isn’t substantial, it does cast doubt over the ability of the Eurozone economy to spur prices without help from the ECB. If the bank announces any measures to support the economy this time around it may weigh on the Euro.
Key economic events for EURAUD:
· RBA meeting today
· A slew of Eurozone PMI readings and retail sales figures on Wednesday
· ECB meeting on Thursday
· RBA Monetary Policy Statement on Friday
· German and French trade data on Friday, as well as German industrial production figures
EURAUD bounced off an important medium-term support level around its 50-day SMA overnight. However, there is a possible bearish crossover in daily MACD, thus if this week’s central bank meetings play out as expected, we could see EURAUD make another attempt to break its 50-day SMA. Beyond here we are watching another support zone around 1.5040 – this year’s low.