Forex Analysis: Euro Eyes EU FinMin Summit, Aussie Gains on RBA Bets

The Euro is looking for further progress at a summit of EU finance ministers to extend its rally while the Aussie gains as the RBA downplays rate cut outlook.

Talking Points

Euro Looks for Bank Regulation Deal at EU Summit to Extend Rebound
Australian Dollar Gains as RBA Pours Cold Water on 2013 Rate Cut Bets

All eyes are on a meeting of EU finance ministers in European trading hours, where policymakers are due to focus on the issue of a single bank supervisor. Leaders of the common market agreed in June to set this as a precondition to allowing the EFSF/ESM bailout facilities to recapitalize regional banks directly without funneling funds through the governments of member states (which otherwise increases sovereign debt levels). Progress on this front is likely to be viewed favorably by the Euro as well as risk appetite at large, and vice versa.

The Australian Dollar outperformed in overnight trade, rising against all of its leading counterparts despite a decision to cut interest rates to 3 percent by the RBA. The reduction was widely expected, with data from Credit Suisse suggesting markets were pricing in the probability of a 25bps reduction at over 90 percent. This turned forex traders’ attention away from the change in the lending rate itself and toward guidance for future policy. RBA Governor Glenn Stevens projected no urgency in continuing the easing cycle, saying the effects of past efforts are yet to be felt in the overall economy. This was perceived as denting the likelihood of further rate cuts in the near term, sending the Aussie higher.

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