Euro Suffers as US Dollar Hits 2019 Peak, AUD Eyes Possible RBA Surprise - US Market Open

MARKET DEVELOPMENT – Euro Suffers as US Dollar Hits 2019 Peak, AUD Eyes Possible RBA Surprise

New Zealand Dollar took a hit as business confidence dropped to a 11-year low which has come despite the RBNZs surprise 50bps cut in August. Consequently, the Kiwi made a fresh 4-year low having briefly dipped below 0.6250. While CFTC positioning highlights that net NZD shorts may be at extreme levels, the lack of positives emanating from the New Zealand economy keeps the currency pressured.

Australian Dollar eyes the RBA rate decision in which expectations are for a 25bps rate cut as money markets price in 19bps (=78% likelihood) worth of easing. However, last week saw RBA Governor Lowe refrain from providing a confirmatory signal, while the RBAs Shadow Board has attached a 65% probability that the OCR should remain at 1% with a 24% probability that a cut is required. As such, given current market pricing risks are asymetrically tilted to the upside provided that the RBA keeps the cash rate unchanged. That said, in light of the deterioation risk environment, rallies in the currency may well be sold.

US Dollar posts fresh 2019 highs as Euro and Sterling breaks below 1.09 and 1.23 respectively. Concerns are likely to persist among the ECB rate setters as German inflation dipped below expectations with the headline rate at 1.2% (exp. 1.3%), which also came in tandem with yet another slide in inflation expectations. Elsewhere, UK politics is expected to boost volatility in the Pound.

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