The EUR AUD exchange rate has had ample opportunity to advance this week, as the previously bullish Australian Dollar weakened and allowed an increasingly sturdy Euro to capitalise on decent Eurozone data. However, Thursday’s data left the Euro to Australian Dollar currency pair weaker.
- EUR AUD Exchange Rate Hovers around 1.47 – Falls from close to best August levels
- Euro Weakened By July Inflation – Monthly inflation contracts more than expected
- Australian Dollar Boosted by Employment Results – Unemployment falls to 5.7%
- Forecast: Thursday Data Drives EUR/AUD Through Monday – Eurozone August PMIs next week
EUR AUD Exchange Rate Looks to End Week Near One-Month High
The Euro continued its advance against the Australian Dollar throughout Friday’s European session.
At the time of writing, EUR/AUD was trending in the region of 1.4850, having gained over two cents since the week’s opening levels of 1.4593.
German’s producer prices bolstered the Euro’s appeal slightly on Friday, as better-than-expected producer prices could lead to higher consumer prices and inflation down the line if the trend continues.
The Australian Dollar, on the other hand, failed to regain its strength despite the week’s solid Australian data. This was partially due to news that Moody’s had revised Australia’s credit rating outlook from stable to ‘negative’.
Eurozone data will likely drive the EUR/AUD exchange rate next week, beginning with Tuesday’s preliminary August PMIs. If these PMIs continue the growth trends seen in July, Euro sentiment will remain sturdy going forward.
(Previously updated 16:42 BST 18/06/2016)
EUR AUD Exchange Rate Advances Again as ‘Aussie’ Sentiment Fades
The Euro was able to return to near its best weekly levels against the Australian Dollar by Thursday afternoon, as Eurozone data and a weakening of ‘Aussie’ sentiment allowed the shared currency to advance.
Rather than any ill sentiment towards the Australian economy or Dollar, the weakening of the Australian Dollar’s morning rally was largely due to an increase in demand for its commodity-correlated peer, the Canadian Dollar. As oil prices increased to over US$50 per barrel, yield-seeking AUD investors traded the currency in for the oil-correlated ‘Loonie’.
The Euro itself was also boosted slightly after trending limply in the morning, thanks to the day’s inflation data and the latest minutes report from the European Central Bank (ECB).
ECB policymakers maintained a vague, cautiously optimistic tone in the report detailing the July policy meeting. Officials indicated that while the Brexit vote was a concern, the bank would not act rashly as the Eurozone had proven resilient thus far.
The bank went on to remind markets that, while it had the means to expand stimulus measures, it would not do so unless it was necessary for the Eurozone’s economic recovery.
(Published 11:25 BST 18/06/2016)
Despite the ‘Aussie’s strength on Thursday, EUR/AUD has gained considerably this week, from Monday’s lowest levels of 1.4545 to Wednesday’s high of 1.4791. At the time of writing, the pair was trending in the region of 1.4700.
Euro (EUR) Exchange Rates Fluctuate on Mixed Inflation Results
The Euro has remained sturdy for much of the week due to increased hopes that the Eurozone’s economic recovery was proceeding despite previous concerns that the Brexit vote had been destabilising.
However, EUR’s sturdiness was undermined slightly on Thursday upon the release of July’s highly anticipated Consume Price Index (CPI) report.
While the report wasn’t entirely negative, it had muted the Euro’s attempts to surge higher, being met with mixed reactions from investors.
Monthly consumer prices fell from 0.2% to -0.6%, a worse contraction than the expected -0.5%. This was the primary reason for the Euro’s heavy Thursday movement, as low inflation could lead to further monetary easing policies from the European Central Bank (ECB).
On the other hand though, the Euro was kept afloat thanks to the yearly inflation score of 0.2%. Some analysts expected this figure to slow to 0.1%, so this result was seen as positive.
As the Euro didn’t plummet across the board following the news, it could be indicative that investors have not shifted ECB easing bets considerably in response to the figures.
Australian Dollar (AUD) Bolstered by July Employment Results
Thursday morning’s Australian employment report for July surprised investors who had recently been selling off the Australian Dollar from its highs, with an unexpectedly high employment change and a drop in the key unemployment rate being recorded.
Australia’s employment sector was expected to add an additional 10k jobs in July, but the report instead printed an impressive figure of 26.2k. Not only that, June’s decent score of 7.9k was revised up to 10.8k.
This is notable because despite an analyst consensus that the key unemployment rate would remain at 5.8% in July, it dropped to 5.7%.
This unexpected drop in unemployment left Australian markets cheery and investors quickly bought into the high yielding Australian Dollar. The Financial Times reported;
‘This was the largest increase in part-time roles since February 2009. This meant the unemployment rate dropped to 5.7 per cent, trumping expectations that it would hold steady at 5.8 per cent. …
It is now the fifth consecutive month the economy has gained jobs, but wage growth has not been so impressive in recent quarters.’
Bearish forecasts for the future price movement of iron ore, Australia’s most lucrative commodity, may also have weighed on the ‘Aussie’ and prevented the currency from capitalising on the solid employment print.
EUR AUD Exchange Rate Forecast: Eurozone August PMIs Next Week
There isn’t much left on this week’s economic calendar, as investors will likely move on the Euro and Australian Dollar in response to Thursday’s news until the end of the week.
For the Euro, bets on whether or not the European Central Bank (ECB) will ease monetary policy further in coming months is likely to be a prime factor impacting Euro appeal.
Eurozone inflation remains well below the bank’s targets, and a dovish tone from the ECB’s latest minutes report could cause ECB easing bets to increase.
Investors may also react to Friday’s German producer price report if it indicates any potential effect from the Brexit. It’s possible that a cheaper Pound Euro exchange rate has made production cheaper in the Eurozone’s biggest economy.
As for the Australian Dollar, markets are still hesitant to engage in a full risk-on movement and dipping prices of iron ore will weigh on the chances of a risk-correlated surge. Regardless, the high-yielding ‘Aussie’ will remain in solid demand going forward as RBA rate cut bets are low.
The next key movement for EUR/AUD will likely be next Tuesday, following the publication of the Eurozone’s preliminary August PMI results.
Eurozone PMIs impressed markets in July by indicating little to no Brexit-vote damage, but if these sectors look to slow in August it could cause the Euro to plummet.
At the time of writing, the EUR AUD exchange rate trended in the region of 1.4700, while the AUD EUR exchange rate traded at levels around 0.6800.