The President of the European Central Bank, Mario Draghi, unsurprisingly left Interest rates unchanged last night, which was the consensus among economists.
However, with economic data like the annual inflation report showing that inflation reached its lowest rate in nearly 5 years at just 0.5% (well below the ECBs target rate of 2%) and a business survey showing the economy in Eurozone slowed he is finding it harder and harder to do so. In his accompanying speech he reminded anyone and everyone that if unconventional methods were required to bring that inflation target where he wants it to be then he had unanimous support to do so.
Mario Draghi’s rhetoric has become increasingly dovish. The ECB President is clearly being painted into a corner where he is left with few choices but to join the ‘currency war’ fight to weaken his currency. His comments a few weeks ago that the high Euro is becoming a problem combined with his comments last night are the first signs that unless a turnaround is seen in the Euro-zone the Euro’s rally may be at an end.
The Euro is looking especially weak against the Australian Dollar. The potential for the RBA to raise interest rate as early as 2015 is making the Aussie look very attractive for investors and is helping it outperform the Euro.
The Aussie dollar has also moved higher against the Kiwi, helped by possibilities of future rate increases as well as the IMF coming out on Tuesday and saying the NZD is potentially 5-15 % overvalued.
The US Nonfarm Payrolls employment reading tonight could be a potential spanner-in-the-works for the recent Aussie strength if the number of jobs added is over the 200 thousand expected. This could give more and more credence to the U.S. Federal Reserve to further reduce its accommodative monetary policy stopping in its tracks this AUDUSD run we have seen of late.