Currency Update – Monday 23rd August

Currency Update – Monday 23rd August

The AUD has weakened sharply over the weekend in response to the political uncertainty following the Federal election this weekend. The result is the first hung parliament in 70 years and the lack of clarity over who will take charge of the finances may not be solved for at least a few days. This has left the markets very jittery with regards to the AUD and has heightened risk aversion giving a boost to the USD and helping it keep hold of the gains it made last week.

The Euro is having a bit of a harder time and was hurt on Friday after ECB council member Axel Weber was quoted saying it would be wise to keep monetary conditions loose for some time. The Euro has had a hard time of the recent spate of risk aversion and has been close to an eight week low against the pound and month low against the USD and was not helped by the poor data out from the US towards the end of last week. 

This morning’s  August Purchasing Manager Index for the Eurozone has come in slightly worse than expected although it does still point to some growth in both the services and manufacturing sectors just not quite as high as expected or as high as we saw last month. We have a fair amount of data out this week but the highlight will be the review of Q2 GDP figures for Germany tomorrow and both the UK and the US on Friday following the surprise jump to 1.1% growth when expectations were for around 0.6% growth. Investors will be looking for clarity about where this growth came from and how sustainable it is.

With very little data out for the rest of the day it looks as though risk aversion will be the order of the day with quite a bit of volatility around the AUD. The Euro, already on the back foot a little, could see further falls against both the GBP and the USD although sterling is not without problems and the USD could again prove to the best performing currency at least until some data gives us cause to believe otherwise.

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