Aussie Dollar Strengthens Against European Currencies on Energy Prices and Hawkish RBA
The Australian dollar has strengthened against European currencies due to higher energy prices and a likely hawkish hold from the Reserve Bank of Australia (RBA). The RBA overestimated inflationary pressures in May but still sees it as too high, which keeps the risk of another interest rate hike alive. However, markets now favor one more hike this cycle.
The terms-of-trade tailwind favors the Aussie due to its status as a major energy exporter, meaning higher energy prices bring in a positive shock. This is in contrast to European countries, where energy insecurity leads to negative effects on their economies.
The EUR/AUD and GBP/AUD currency pairs are in focus, with traders assessing whether the fundamental tailwinds translate to fresh downside. The EUR/AUD pair looks heavy on the charts, sitting just above support at 1.6340, while the GBP/AUD is near a squeeze risk build near 1.9150.