FX Daily Strategist: Europe

AUDUSD slipped half a cent to a low of $0.9505 as RBA Governor Glenn Stevens stated that the current exchange rate was not supported by Australia’s economic fundamentals. He noted that “the terms of trade are likely to fall, not rise, from here. So it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today.” Australia is facing the same challenges of many Asian countries in that currencies are appreciating following expectations for later (and slower) Fed tapering as well as stronger Chinese growth expectations for Q3 and Q4 of this year. Central banks’ attempts to push currencies lower via rhetoric are required when market pressure wants to push these currencies higher. AUDUSD has rallied 8% since its August low and is on target to reach our yearend target of 0.98. RBA rhetoric is unlikely to change this trend.