In US trade overnight, risk appetite remained resilient heading into the EU summit.
European and US equities enjoyed a session of solid gains on the back of some better-than-expected US economic reports and speculation that China will enact further stimulus measures to buffer its economy from a global slowdown. Despite the bullish overtones underpinning the session, both the euro and the pound lost ground on expectations of upcoming monetary policy easing from their respective central banks. A moderation in German CPI data overnight (1.7% year-on-year, down -0.1% month-on-month) raised expectations of further monetary easing by the ECB at its next policy meeting on July 5.
The latest Reuters poll has indicated that 48 out of 71 economists believe the ECB will cut its benchmark rate next week, with a 25 basis-point cut being most likely. Similarly, the pound weakened after a report showed that UK mortgage approvals fell to their lowest levels in more than a year, providing further room for the BoE to bolster its stimulus measures at its next meeting. With the RBA having already commenced a cycle of policy easing and generally thought likely to hold firm at its next meeting in early July, the AUD’s fortunes are following that of global sentiment.
Fickle as it is, it was higher overnight on suggestions that China would soon enact measures to buffer its economy from any further slowdown. This reignited some interest in the base metals complex (which has been stuck in a rut for most of the second quarter), and by extension the AUD. In early Asian trading, all three currencies have moved higher in-line with firmer equity markets. The AUD is currently at 1.0112, the GBP at 1.5583 and the EUR at 1.2490.