The Australian Dollar has this week reached a two-year low against the USD even after the RBA raised rates again yesterday, another 50 basis points added to the interest rate for the second month in a row after a 0.35% move in May. Even with an aggressive move in interest rate the AUD has continued to be under heavy selling pressure and touching a low of 0.6761 this week.
The increase in the interest rate were very much expected and priced in by the markets, however you would normally expect to see a bounce in the exchange rate, yesterday we saw nothing, with rates falling from approx 0.6880 when the decision was announced to below 0.68c as the European session opened in the afternoon.
The previous levels of support at 0.6850 have been broken, and the concern is that if we don't see the rates bounced back shortly, we may see the next support levels at 0.6764 come into play, before a real concern at 0.6670 if you're an importer.
The AUD has also been heavily affected recently with a drop in commodity prices, as Iron Ore has taken a large hit in the previous few weeks with an over supply issue in China coupled with a fresh wave of COVID-19 infections in China, as concerns intensified that Beijing’s renewed pursuit of its zero-COVID-19 policy will trigger a slowdown in the world’s second-largest economy and stall steel demand.
Overall it is a very concerning time for the AUD/USD exchange rate as we sit at important levels of support, importers hoping for a bounce back above the 0.70c mark, while exporters will no doubt be happy where things are.
The Euro reached its lowest point since 2003, a 19 year low overnight falling below $1.03, and to consider that this did not happen during either the European Debt Collapse or the Global Financial Collapse really puts into perspective just how concerning this move is.
It has found support over the years at 1.03 several times, and most recently in 2017, however the move overnight has some market commentators concerned that we could see potential parity which was last reached in 2002.
The difference in approach between the European Central Bank and the US Federal Reserve is stark with both economies sitting with inflation above 8% however the US Fed hiking rates with a priority towards tempering inflation, whereas the ECB seem more relaxed about this area and we are seeing a huge divergence in this currency pair.
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