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Euro Grows Against Dollar on Eurozone Inflation Data

After convening today the Reserve Bank of Australia kept their base rate at 2.0% whilst not shedding light on any plans for the future.

The Australian dollar’s strength, which has been trading down the past few sessions, is one of the key hindrances for economic growth and the RBA insists that a further weakening of their currency is necessary to support the economy after a massive boom in the mineral extracting sector.

The Aussie dollar needs to drop further to facilitate a reorientation of the economy from mineral extraction to other sectors. The RBA announced that it is keeping a watchful eye on economic data and financial conditions with the intention of defining the right way to go forward with its economic policy.

The lean towards a relaxation of monetary policy wasn’t outlined, causing the growth of the Australian dollar. The Aussie/Yank pair rocketed to 0.7686. Looking at the pair’s short term perspectives: it’s to trade 0.7630-0.7700.

It’s worth mentioning that the chances that the rate will be dropped still remain, but today’s announcement from the Australian central bank perked up market participants’ confidence over the fact that, currently, nothing is planned. Furthermore, the RBA could wait and see whether a rise in rates by the US Fed makes the dollar strengthen. If it does, the Australians’ problem of an excessively strong currency will have to sort itself out without any action from the RBA.

The Grexit is still Europe’s elephant in the room. Yesterday at an emergency meeting in Berlin, the heads of Germany, France, the president of the European Commission, Jean-Claude Juncker, the Head of the ECB, Mario Draghi, and the head of the IMF, Christine Lagard convened. The purpose of the talks was to whittle down the options into a common stand-point on Greece. Whilst there’s still no definitive result from these talks, the media is speculating about further progress and the need for each of the sides to spend more time together.

Today some Eurozone inflation data was published. The CPI grew by 0.3% YOY, with the base index at 0.9% YOY. These results will bear real importance in the build up to the ECB’s next meeting, scheduled for tomorrow, where they will make a decision on interest rates. It’s likely that Mario Draghi will mention this price rise and that it is a consequence of the ECB’s quantitative easing program which began in March. However, calls for structural reform haven’t been silenced, although they are unlikely to be answered.

The euro/dollar broke the upper limit of the 1.0827-1.0988 range and grew to 1.1027. Further movements on the pair will depend on the outcome of tomorrow’s ECB meeting.

Today it’s worth having a look at what Lyle Brainard, member of the FOMC, has to say and also data on the volume of April manufacturing orders from the US. In addition, indicators for changes in oil reserves according to the API will be published in a report from the US Department of Energy. According to previous reports, the reserves are on the decline, giving support to oil quotes.

At writing this review the price of Brent oil is at $65.24 per barrel.

The market is awaiting the coming together of OPEC, planned for 5th June. It’s highly likely that the cartel will stick with their current extraction limit, 30 million barrels a day. This is since producer states like Saudi Arabia are doing what they can to retain their market share. In particular, the Saudi Minister for oil, Ali Al-Naimi, announced that demand for oil will rise and the rate of supply will fall. Although, a surplus of oil on the market remains.

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