The euro sank again on Friday, ending the week at 1.1015. That dragged the Aussie dollar back to a low of 0.7811 in US trading after it spent most of our day Friday around 79 cents.
It closed at 0.7826 and has opened a little lower this morning at 0.7822.
The euro’s woes are likely to continue this week after ECB president Mario Draghi said on Saturday that the very fabric of the European monetary union is threatened by structural imbalances within the union between different countries.
In a monetary union you can’t afford to have large and increasing structural divergences between countries, they tend to become explosive. Therefore, they are going to threaten the existence of the union, the monetary union.
The euro’s woes and Draghi comments come after the double whammy for the euro and Aussie dollar bulls with Fed chair Janet Yellen signaling Friday that rate hikes are still coming in the US this year and that she still thinks the economic slowdown is transitory.
Not fresh news, but the reinforcement of the Fed’s tightening path is one of the most important drivers of any US dollar moves in the months ahead.
That’s important because the Reserve Bank, and governor Glenn Stevens, have consistently signaled the Aussie dollar needs to fall but hinted strongly that it will happen once the Fed starts to tighten.
So this morning Glenn Stevens and his colleagues will be smiling. They’re also likely to be expecting the Aussie dollar to get back in the 77 cent region very soon.