EUR/AUD – RBA To Reconsider QE Tapering

#OPINIONLEADER# #Signal#

 AUG 2, 2021

• Robust economic recovery in the eurozone continues
• RBA set to deliver a dovish tone
• Potential upside in EUR/AUD

Chart 1: EUR/AUD D1 chart

Last Friday, a series of eurozone economic data releases indicated that the ongoing economic recovery is still robust. (Refer to Chart 2) Preliminary release of annual CPI data shows that headline inflation is still rising around the European Central Bank’s 2% target while economic growth rebounded strongly during the second quarter. Furthermore, unemployment rate continues to fall lower in June. As a result, euro strengthened against the Australian dollar.

Chart 2: Eurozone economic data releases

The Reserve Bank of Australia (RBA) will be announcing their monetary policy decision tomorrow. With the recent spike in COVID cases in July and the extension of lockdown measures due to the Delta variant, the central bank may hold back on its plan on quantitative easing (QE) tapering that was announced during the previous meeting, allowing it to evaluate the situation further before deciding if a tapering is warranted. Although unlikely at the moment, one possible action that the RBA may carry out tomorrow is to increase QE from the current A$5 billion per week. This may lead to a further weakening of the Australian dollar against the euro.

At the moment, EUR/AUD is trading slightly below the 1.62 handle. If the RBA were to send out a dovish tone tomorrow, causing EUR/AUD to breach above the 1.62 handle, look for buying opportunities.

Trade Setup for EUR/AUD (D1)

Buy Stop at 1.6240

Upcoming major news that may impact price movement of EUR/AUD

03 August – Reserve Bank of Australia monetary policy decision announcement at 1230 (GMT+8)

04 August – Australian retail sales m/m data release at 0930 (GMT+8)

06 August – Reserve Bank of Australia Governor Phillip Lowe testimony at 0700 (GMT+8)

06 August – Reserve Bank of Australia monetary policy statement release at 0930 (GMT+8)