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November 2015

Daily Currency Insight

Published: Thursday 26 November 2015

  • Euro under pressure
  • AUD tumbled as Q3 Capex disappointed
  • Thanksgiving today US markets closed

The single currency remains under pressure this morning as a report yesterday suggested that a two tier application of the negative deposit rate had been discussed by members of the European Central bank. It's not entirely clear whether or not this will help to force rates lower however it does underscore the theory that Mario Draghi is committed and will do "whatever it takes" to engineer a recovery.The market is clearly short of euros and is braced for a negative surprise from the ECB next week. For now it looks like any rally in the currency will be short lived as we await further clarity next week.
 
Overnight the Australian dollar tumbled as Q3 Capex disappointed coming in at 9.2% which is the weakest since records began. Q2 data was also revised downwards. The outlook for 2016 was broadly in line with consensus but it still represents a 20% decline from the this time last year. It seems that the markets have underestimated the chances of easing from the RBA next year and with the economy continuing to struggle, there could be further depreciation of the currency in the short term.
 
The dollar continued to appreciate ahead of today's Thanksgiving holiday with the Pound and the Euro both falling as a result. While the dollar was unable to sustain those gains it is likely that the risk will remain to the upside for the dollar as the yield differentials continue to move in its favour. The divergent paths of the respective Central banks are what is currently driving FX markets and that is set to continue through the rest of the year. Today US markets are closed so it is most likely that current trends will prevail.