The overnight session has seen some short covering on the Aussie after the latest interest rate decision. Naturally, there was no surprise with the fact that rates were kept on hold at 2.50%, with no major changes to the statement. Within this, the RBA continue to believe that a fall in the exchange rate will not threaten the inflation outlook and continue to point out that “the exchange rate remains high by historical standards, particularly given the decline in commodity prices”. The Aussie recovered to the 0.9275 level, but the move was modest, as were other overnight developments. AUDNZD continues to hang close to the 1.10 level and below the 200d moving average which currently sits at 1.0986. Note that the Kiwi central bank decides on rates next week and one more tightening could well be in the bag before they choose to pause. This should keep AUDNZD as one of the more interesting crosses in the early part of June.
The other crosses to keep an eye on are EURJPY and EURGBP. The former has failed to close below the 200d moving average (currently 138.45), which previously acted as decent support during the latter half of May, but the ECB meeting on Thursday could well determine the near-term fate. EURGBP has also recovered from the weakness seen into month end, but once again the underlying strength of sterling is pushing towards the 0.81 level again. Even though the potential for a much weaker EUR on the back of the ECB meeting this week is not that strong, the fact that the debate in the UK is moving more towards the potential for rate hikes suggests further potential downside pressure for the cross.