Has the Aussie dollar peaked? | Fireworks in Brussels fail to move the Forex market

Yesterday the Australian dollar went to its highest level against the US dollar since November of last year – in other words it reached its highest for all of 2014 to date. Overnight (GMT), during the Asian session, however, it has come back below resistance (at 0.9463).

While the move up was on the back of a less than dovish stance by the Reserve Bank of Australia in the commentary that accompanied its recent decision to leave interest rates unchanged, it also reflects underlying weakness across the board in the US unit.

Jobs will be key

The rise in the Aussie is almost counter-intuitive. Certainly, there is significant interest rate differential in favour of the Australian unit and while there is no clear indication that this will change in the short term, in the medium term there is every reason to think so. Iron Ore prices have gone through the floor; the Chinese economy, on which Australia is very dependent, has been adjusting to a lower growth model for some time; and now a number of reports have appeared that warn of significant job losses in Australia as it adjusts from a mining based economy to one that is more reliant on local consumption. All of these things should militate against a strong Australian currency.

Perhaps the market needs to see Australian job losses reflected in an official report before it demotes the currency.

And the same applies to its counterpart in the AUDUSD pair. The US Non Farm Payroll report, due out tomorrow (Thursday) could, if strong, provide the impetus for an end to the recent slide in the Greenback and a consequent fall in AUDUSD.

Fireworks in Brussels fail to move the Forex market

Our Brussels correspondent was on scene on Friday last when the great battle took place between Great Britain, on the one hand, and practically the rest of the European Union but with Germany’s Angela Merkel foremost, on the other, about the selection of Jean-Claude Juncker as President of the European Commission, to succeed Jose Manuel Barroso.

Britain was objecting to the former president of Luxembourg on the grounds that he represents the Federalist mindset within Europe. The Conservative government in London (which would really like it to be little more than a trading club) thinks that the EU is as fully integrated as it should be.

Merkel et al won out, and M. Juncker is to occupy the position. What is of supreme interest here is the effect, or rather the lack of any effect, of all these shenanigans on the fate of either the Euro or the British pound. There is no doubt in this commentator’s mind that if anything similar had taken place in the political scene on the other side of the Atlantic the repercussions for the US dollar, and the equity markets, would have been profound.