Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Why AUD And EUR Are Soaring Into RBA, ECB

Published 31/01/2022, 23:27
Updated 09/07/2023, 11:31
The two best performing currencies today were the Australian dollar and the euro, which is a bit ironic because the Reserve Bank of Australia and the European Central Bank are two of the least hawkish central banks. Yet, central bank expectations are the reasons why AUD and EUR soared on Monday. Traders and investors are worried that the RBA and ECB could turn less dovish and start to align themselves with other central banks that plan to raise interest rates in early 2022. Having fallen to a 1.5-year low last week, AUD/USD rallied on the back of short covering. The euro soared on the back of stronger German inflation data. 
 
Tonight should be a busy one for the Australian dollar. Retail sales will be released before the Reserve Bank of Australia meeting. Consumer spending should be healthy given the rollback of restrictions in the fourth quarter. At its last meeting, the RBA said it doesn’t see rates rising until 2024, but with central banks around the world tightening, it may have to adjust its outlook. This could come in the form of upgraded assessment of the labor market and inflation. It could also talk about ending bond buying, which would be a step taken before rates are increased. If any of these things happen, AUD could extend its gains quickly.
 
No changes are expected from the European Central Bank, but traders are betting on a year-end rate hike, with futures pricing in a quarter-point hike by the end of the year. If the Fed hikes by 100bp this year, a 25bp move by the ECB would not be out of the question. But we doubt that President Christine Lagarde will drop any hints of that possibility at this week’s meeting. German retail sales and labor market numbers are due for release on Tuesday. According to the PMIs, jobs were added at a faster pace in the month of January. 
 
The Federal Reserve may be one of the most hawkish central banks, but the U.S. dollar traded lower against all of the major currencies. The Chicago PMI index was stronger than expected, signalling upside surprise for the ISM manufacturing index scheduled for release on Tuesday. With the market fully discounting next month’s rate hike and policy-makers clarifying that it will most likely be a quarter-point and not a half-point move, there was little upside to the dollar. Non-farm payrolls are due for release on Friday, and while this is typically a very market-moving release, it is expected to be less so this month. NFPs help to shape expectations for FOMC, but the market is pretty confident in what the Fed has in store.  
 
The continued rise in oil prices helped drive the Canadian dollar higher. The New Zealand dollar also traded firmly ahead of the Reserve Bank’s monetary policy announcement. The country’s trade deficit shrank significantly at the end of the year. Sterling extended its gains for the second day in the row, with the Bank of England being the only central bank that could tighten this week.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.