The Australian dollar is tumbling against European currencies

Getty/Marco Luzzani

The Australian dollar endured a Topsy-Turvy session on Tuesday, rising in Asia before reversing hard in European and US trade, especially against the euro and UK pound.

And that was despite a surge in iron ore prices, Australia’s largest commodity export by dollar value.

Here’s the scoreboard as at 7am AEST.

AUD/USD 0.7581 , -0.0001 , -0.01%
AUD/JPY 85.16 , 0.37 , 0.44%
AUD/CNH 5.1652 , -0.0341 , -0.66%
AUD/EUR 0.6685 , -0.0094 , -1.39%
AUD/GBP 0.5916 , -0.0044 , -0.74%
AUD/NZD 1.0422 , 0.0027 , 0.26%

The big talking point of the night came from a speech delivered by ECB president Mario Draghi overnight at the ECB Forum on Central Banking in Sinta, Portugal.

Europe’s top banker offered an optimistic tone on the outlook for the European economy, and provided further hints that the ECB is moving closer to removing ultra-loose monetary policy settings.

“As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments — not in order to tighten the policy stance, but to keep it broadly unchanged,” Draghi said.

That was enough to place a rocket under the euro, not only against the Aussie dollar but all major crosses.

AUD/EUR 4-Hour Chart

The Aussie also lost ground against the UK pound following a ruling from the Bank of England (BoE) that UK bank’s will be required to lift capital requirements, a move seen by markets as a small step towards monetary policy tightening by the BoE in the period ahead.

And despite the surge in European currencies, something that weighed heavily on the US dollar, the Aussie was unable to hold its earlier session gains against the greenback, failing for what now seems the umpteenth time above the 76 cent level.

Making the Aussie’s underperformance all the more unusual, the reversal against the US dollar came despite a speech from US Federal Reserve chair Janet Yellen that was widely perceived to be slightly dovish, a delay in a Senate vote on healthcare reforms until early July and a downgrade from the IMF towards the US growth outlook over the next two years.

Traders switching out of the Aussie in favour of European currencies, along with a late selloff in US stocks, go someway to explaining the reversal seen during the session.

AUD/USD 5-Minute Chart

With key speeches from Draghi and Yellen now out of the way, Wednesday’s session is, on the surface, devoid of any major market-moving events.

There is a smattering of central bank speeches scheduled in Asia, Europe and North America, and there is a raft of second-tier data on tap, but none appears likely to deliver a meaningful impact on the Aussie.

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