After the European Central Bank’s meeting last week with some influence from Japan’s fresh stimulus injection, EUR/AUD gained much strength to counter its recent downward trend. The improving risk-on sentiment within the Eurozone despite the turmoil in Cyprus is largely the reason for this new bull-friendly market.
ECB President Mario Draghi did not commit to more monetary easing, which led investors to conclude that a rate reduction is not yet on the cards. Therefore, it is expected that EURAUD will keep up with the upward run in the mean time.
To give more strength to this bullish sentiment is the fact that the Cyprus issue has been partially resolved after its government met all the strict conditions for the Troika bailout. The Aussie Dollar is still being assailed by Foreign Direct Investment (FDI) as some of the country’s huge LNG projects are central to the FDI inflows. In addition, real estate is also part of the FDI injections which takes advantage of Australia’s business-friendly environment. Commercial and residential properties are doing well at the moment, giving high yields compared to the real estate sector in the other developed countries.
Further, the Aussie Dollar continues to be determined by the diversification of cash reserves from the US Dollar, Yen and Euro. The recent retail sales data which shows increasing economic momentum, justifies the previous rate cuts carried out by the Reserve Bank of Australia. It simply means the RBA has been eased of pressure to embark on more rate cutting exercises in the short term. Concerns due to a strong AUD are still lingering though, especially with the lack of a clear forecast within the non-investment sector of the country’s economy.
The 4-hour chart shows a clear downtrend that has now been broken and should travel all the way to the 50.0 fib level at the 1.27 area.
