Unexpectedly strong German manufacturing and services PMIs saw the Euro trending sharply higher across the board, boosting confidence in the health of the Eurozone’s powerhouse economy.
The strength of the manufacturing data was particularly encouraging to investors, with sector growth accelerating solidly to push the index up from 59.3 to 60.6.
Coupled with a similarly robust showing from the French economy this painted a more encouraging picture of the currency union’s outlook.
As a result, the Euro Australian Dollar exchange rate trended higher on Friday morning even as markets braced for the latest commentary from European Central Bank (ECB) President Mario Draghi.
Investors are still uncertain of the likelihood of the ECB beginning to taper its quantitative easing program imminently, given the persistently dovish nature of the central bank’s communication.
However, if Draghi expresses less concern over the relative strength of EUR exchange rates this could offer the single currency another strong rallying point.
On the other hand, any indications that the ECB is less likely to return to a monetary tightening bias in the near future could weigh heavily on the Euro.
Some degree of market jitters could build ahead of the results of Sunday’s German election, even though investors anticipate another victory for Chancellor Angela Merkel.
Hints of More Hawkish RBA Support AUD Outlook
Markets largely shrugged off the latest developments surrounding North Korea this week, even as tensions showed fresh signs of escalation.
This benefitted the risk-sensitive ‘Aussie’, which also found support on the back of the latest comments from Reserve Bank of Australia (RBA) Governor Philip Lowe.
As analysts at Goldman Sachs noted:
‘RBA Governor Phil Lowe outlined his thoughts on the “next chapter” of the Australian economy, expressing the view that the period of global monetary expansion “is now drawing to a close” and that this tightening would, over time, “be expected to flow through to us, just as lower rates have”.
‘(…) Combined with the positive speech yesterday by Assistant Governor Ellis, it is clear the RBA is gradually shifting towards a more positive stance.’
While the odds of any imminent policy moves are still relatively slim this was enough to bolster the appeal of the Australian Dollar, partially limiting the gains of the EUR AUD exchange rate ahead of the weekend.
With fresh Australian data rather lacking in the coming days, though, the antipodean currency is unlikely to find any particular traction against its rivals.
Unless there is a significant easing in global geopolitical tensions then the upside potential of the Australian Dollar looks set to remain relatively limited.
Current EUR AUD Interbank Exchange Rates
At the time of writing, the Euro Australian Dollar exchange rate was trending higher around 1.5072. Meanwhile, the Australian Dollar Euro exchange rate was trending narrowly in the region of 0.6634.