Has ECB's easing stimulated inflation? EUR/AUD puzzles between ECB and RBA

Due today, money supply growth in the euro area probably will have quickened to 5.2% yoy in April, attributable the acceleration in asset purchases by the ECB over the reference period (to €80bn per month, compared to €60bn before).

On the inflation front, the flash estimate contained in the euro area May CPI report should show relative improvement, with “core” inflation accelerating to 0.8% yoy (the headline, although improving as well, should remain in negative territory).

Finishing with Germany, the month of May might bring a reduction in unemployment (to only 6.1% of working-age population), as indicated by recent upbeat domestic sentiment indicators.

The ECB has indicated a extra relaxation in monetary policy at its upcoming meeting day after tomorrow. But during December’s under-deliverance highlights the risk of another disappointment, the deteriorating economic outlook should persuade the Governing Council to be bolder this time. We expect both a 20bp cut in its deposit rate and a €20bn expansion of its monthly asset purchases.

On the flip side, we also anticipate the calls for two more cuts from the RBA in H1 2016 though there is a higher risk now that those cuts are delayed, whereas the speculations on Fed's rate hike on the other hand is also mounting in June.

As a result of previous RBA's unchanged monetary policy at 1.75%, AUD seems adjusting higher. The statement's description of the AUD was little changed, saying "the exchange rate has been adjusting to the evolving economic outlook."

Consequently, EURAUD has been showing whipsaw pattern on 7DMA and shooting star signal reversal, long term trend has been puzzling if you see the monthly charts of EURAUD. Any potential rate by RBA could add extreme pressure on AUD for sure.