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EUR AUD Climbs; ‘Macron Rally’ Subsides but Australian CPI Undershoot Softens Australian Dollar

Update: Thanks to weaker-than-expected Australian consumer price index figures, the EUR AUD exchange rate continues to gain today, rising 0.4% to 1.45. Price growth remained at 0.5% on the quarter and accelerated to 2.1% on the year; -0.1% below forecasts in both instances.

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The results of the first round voting in the French Presidential Election have sent the EUR AUD exchange rate charging up 1% to 1.43.

Market-favourite Emmanuel Macron received 23.9% of the vote and goes through to the second round to face Marine Le Pen, who secured 21.4% of ballots.

While Le Pen is a threat to Eurozone stability – and therefore the Euro – thanks to her plan to reintroduce the Franc and leave the currency bloc, polls indicate she will take just 32% of the votes in the second and final round of voting on May 7th.

National Australia Bank (NAB) claims that: ‘This outcome, according to NAB, represents a victory for French opinion polls suggesting that markets are happy to buy that Emmanuel Macron will be confirmed as the next president in two weeks’ time as almost a fact.

This has seen investors piling back into the Euro, which had lost over one-and-a-half cents against the Australian Dollar in the days preceding the weekend vote.

Macron will be reassuring to markets, with his pledge to lower corporate taxes and to lighten the administrative burden on firms,’ explains Opimas Chief Executive Octavio Marenzi. ‘He basically represents continuity.’

Data has further provided support for the Euro; while the German IFO expectations index dipped unexpectedly from 105.7 to 105.2, the business climate index hit 112.9 – its best level since July 2011 – and the current assessment reached a 69-month best of 121.1.

Although Euro gains against the Australian Dollar are strong, the surge is mild compared to the advance seen by the common currency against other majors; EUR GBP and EUR USD are up 1.3%.

The Australian Dollar is benefitting from a rekindling of global risk appetite, even as North Korea potentially gears up for another missile test; possibly its sixth nuclear launch or the first test of an intercontinental ballistic missile (ICBM).

However, news from elsewhere has reignited the global hunt for yield, including Macron’s success in the Presidential Election, which has seen safe-haven gold prices tumble more than -1%.

Elsewhere, Japan’s Finance Minister Taro Aso has commented that the Trans-Pacific Partnership (TPP) could potentially go ahead without the US; something Japan had previously ruled out after President Donald Trump made withdrawing from the deal one of his first actions in office.

Speaking after a gathering of G20 finance leaders, Aso commented that; ‘Some countries are keen to do this and will come up with various ideas. There’s no reason to turn this down. Various options are available and (negotiating without the United States) is one of the options.

The TPP was aimed at reducing tariffs and fostering greater economic cooperation between nations responsible for 40% of the world’s economic output; Australia would have benefitted heavily from the agreement, as a third (nearly AU$100 billion) of its total exports in the 2015-16 fiscal year went to countries included in the deal.

Australia was one of the first countries to push for the agreement to continue without the involvement of the US, dubbed ‘TPP -1’, but Japan had been firmly of the opinion that there was no point in proceeding without its major player.

However, there are fledgling hopes that Donald Trump’s softening attitude towards protectionism, backed up by recent comments made by Vice-President Mike Pence regarding free-trade with Japan, could see him returning to it if a new deal was agreed.

There is little in the way of Eurozone or Australian data over the coming days, which could leave the Euro on the uptrend.

Tomorrow’s European Central Bank (ECB) bank lending survey and Eurozone fourth-quarter government debt figures are unlikely to provoke much of a response from investors, while the Australian Dollar may be shifted marginally by the latest ANZ Roy Morgan weekly consumer confidence index.

At the time of writing, the EUR AUD exchange rate was trading around 1.43.