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The reason for this is several-fold but essentially boils down to this: Non-mining investment is not rising at the same rate at which mining investment is falling, so there is a lot of spare capacity (i.e. the economy is capable – there is an able workforce - but it doesn’t have the means to fulfil its potential).

With plenty of slack in the non-mining arena, harking back through six or seven years of this ‘transition,’ there’s little need for these businesses to invest. So the government can’t rely on this to fill the gap. What it wants to rely on though – and what it might be able to – is real estate investment. Let’s not worry about the potential property price bubble and other minor stuff like that!

So a rate cut in August would likely help people borrow to buy houses. With little else in terms of options, and given the Australian government seems willing to run the risk of a property price bubble, it could be a realistic expectation to see the Aussie Dollar weaken between now and August (notwithstanding the possibility of a nasty surprise such as what we’ve become accustomed to in Europe).

The EUR/AUD chart is giving all the signals from a technical standpoint.

·         RSI and stochastics are bouncing back from oversold

·         Trend strength has topped out

·         Directional indicators are making a bullish cross

·         The MACD has made a bullish cross

Note momentum yet to go positive while the 20-day moving average is currently proving a hurdle, but strong 12-month support that launched the pair north on 4 occasions prior provides a decent foundation for another good move higher towards the 100-day moving average.

The outlook for the Euro is pretty neutral at the moment, which means essentially that the driver for this pair is almost solely the upcoming actions of the RBA and some classic technical analysis, easy enough to follow.

Augustin Eden 
Research Analyst
Accendo Markets

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