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AUD slides amid broad USD rally, German GDP on the rise
AUD loses ground amid RBA minutes
The Australian dollar was little changed after the Reserve Bank of Australia published the minutes of its August meeting. AUD/USD was treading water at around $0.7870 following the release. However, in late Asian session the Aussie started to tumble amid a broad-based USD strength. The minutes revealed that the central bank was quite optimistic regarding consumption growth, arguing that “rising employment and stronger household income growth were expected to support consumption growth”. However, the RBA noted that, despite a strengthening in economic condition, further appreciation of the AUD could derail the ongoing economic recovery as well as the pick-up in inflation.
Therefore, we expect the RBA to maintain its neutral stance as the Aussie started to reverse gains. However, further strength in the Australian currency may trigger verbal interventions from Governor Lowe.
AUD/USD slid as ow as 0.7825, the lowest level since July 18th. The currency is slowing grinding towards the next support that lies at around 0.7784-0.7787 (Fibonacci 38.2% on May-July rally and low from July 18th).
German GDP increases despite falling exports
A month before the German election, news regarding the German fundamentals data are still positive. Yet, GDP Growth has slightly slowed. The figure, which has been released this morning, came in at 0.6%, a inch below markets’ expectations at 0.7%. It is the 12th quarter that Germany is printing positive economic growth. The first European economy is growing at the average pace of 0.6% per quarter since 2014. Over the last three years France GDP only increased 0.5% q/q.
It is also worth noticing that annualized growth is robust with a GDP growth at 2.1% which represents the fastest pace since 2014. German fundamentals are on the solid side with unemployment rate at its lowest since 1989. Nonetheless exports are still concerning as June showed the biggest drop since 2015 - 3% - while imports fell even more. Indeed, the euro may be too strong for Germany.
On the short-term, we believe that the Eurodollar is likely to pursue its consolidation phase below 1.1800 and markets seem to start pricing in a more cautious ECB which will definitely weigh on the currency.