Can Aussie Rise to .9000?

Last updated 7/21/2010 3:35 AM ET (GMT -5) 1 Comments

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Boris Schlossberg

Director of Currency Research, GFT

The Aussie, rather than the euro may be one of the biggest beneficiaries of the upcoming results from the EZ bank stress tests due this Friday. On a week when the economic calendar is relatively light the stress tests remain the key focus of the currency markets with rumors already swirling that the vast majority of the banks will pass. The positive risk sentiment has actually helped the Aussie more than the euro with the former rising to a high of .8850 in late session Asian trade today.

The Aussie is not only benefiting from risk flows but from the speculation that the RBA may decide to raise rates once more in August if the CPI numbers due next week on July 28 ^th prove to be hotter than expected. The latest Australian employment data handily beat expectations printing at 45.9K versus 15.3K suggesting that growth Down Under remains robust. Inflation expectations however remain contained with MI Inflation gauge coming in at 0.3% versus 0.5% the month prior. Still, if CPI data prints at 3% or higher the RBA may tighten once again raising Australian benchmark rates to 4.75% - the highest level in the G-20 universe.

The Australian monetary authorities have to walk a fine line between controlling price pressures and maintaining growth. With most Australian mortgages set at a variable rate, the rise in rates to 7.4% in May from 5.75% 12 months prior has added nearly $AUD400 of additional debt service cost to a typical 300,000 mortgage. If the RBA does raise rates in August it may signal that it will pause for a considerable period of time. Nevertheless, a further tightening of monetary policy should attract carry trade flows to the Aussie and push the unit to test the offers at the .9000 level if risk appetite remains supportive over the next several days.  

Comments (1)

MHW

July 21, 2010 at 04:57 AM ET

Can Aussie Rise to .9000?

Since you ask, it will.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.