Overview
The RBA unexpectedly cut its cash target rate by 25bps to 2.25% in an attempt to boost demand which would bolster growth and inflation to the RBA’s desired level. In a reaction to the RBA’s move, AUD/USD fell significantly by as much as 1.7% to briefly touch levels not seen since May 2009. Furthermore, CAD and NZD fell in tandem with AUD, more notably against the JPY with CAD/JPY, NZD/JPY and AUD/JPY all declining over 100 pips each and the latter falling 216 pips. Despite the sharp selloff overnight, AUD/USD retraced some of its weakness in the European session with the weaker USD and firmer oil prices have aided some of the upside in the commodity linked currencies, including CAD, NZD, MXN, RUB.
Ahead of the US open, EUR showed broad strength with the move attributed to technical breaks observed in EUR/USD as the pair tripped through stops to the upside to touch pre-ECB rate decision highs of 1.1450. This consequently weighed on the USD-index as it extended its weakness to break below 94.00. Elsewhere, the broadly stronger EUR has also weighed on its crosses as EUR/JPY gained over a point which also weighed on the generally softer JPY which benefitted USD/JPY. EUR/CHF has continued to edge higher which has been the trend observed through the European morning, as the cross tested yesterday’s high of 1.0589 which marked the highest level since the SNB dropped the cap with analysts suggesting the move was due to possible SNB intervention. Heading into the EU close, the Fonterra GDT auction increased by 9.4% which supported NZD/USD as milk exports account for 7% of New Zealand’s GDP.