AUDUSD: Greenback to Lose on ECB Hopes and Australian Consumer Spending

The US dollar is forecasted to pare yesterday’s gains from the higher-yielding Australian currency as investors appear to be intent to take on risk. With the European Central Bank planning concerted action with Euro Zone countries to bring down the borrowing costs of heavily indebted countries including Spain and Italy, risk confidence looks to make a rebound. Yesterday, the markets were left with failed expectations from the US Federal Reserve.

Earlier trade activity gives a glimpse of how the markets would react to later exchanges. In the Asian session, Australian shares reversed early losses to go up 0.2 percent after a stronger than estimated retail sales performance in June. In the same manner, the Aussie dollar, which has risen 8 percent since June 1, traded at $1.0483 at 2:36 p.m. in Sydney, compared with $1.0456 before the data. In Europe, stock market valuation increased before the ECB announcement. These market movements signify a return to risk, which counter the demand for the safety asset Greenback.

In a report from the Australian Bureau of Statistics earlier, Australian Retail Sales in June matched the biggest advance since April 2011 and exports fell for the first time in four months, signaling the nation’s economic growth is increasingly reliant on domestic demand. Sales climbed 1 percent to A$21.6 billion from a month earlier, when they rose a revised 0.8 percent that was stronger than initially reported. That exceeded the median forecast in a Bloomberg survey for a 0.6 percent gain.

Key to the currency pair’s price activity today are speculations as to how the ECB will take action after a pledge last week by ECB President Mario Draghi. Any indication as to what the ECB chief is planning after his pledge to do “whatever it takes” to save the Euro would hopefully be welcomed by the markets.

Yesterday, the Fed failed to offer new monetary stimulus, which while largely expected, could have gone way better according to analysts. Some observers say that it is not so much what the Fed could have done, but what it should have said. Although Fed officials said the US economy had “decelerated somewhat,” they also held back on fresh measures, dashing expectations among some investors. With investors looking intently at risk-on trades today, losses are projected for the Greenback. Taking a long position is suggested for the AUDUSD exchanges.


Article by AlgosysFx Forex Trading Solutions