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EUR AUD Rises as German Trade Surplus Widens, But is Germany’s Trade Dominance an Issue?

The Euro Australian Dollar (EUR AUD) exchange rate strengthened this morning as Germany released another upbeat trade balance.

Euro (EUR) Bolstered as Germany Trade Surplus Rises

The Euro was bolstered at the start of the week’s trading session today as Germany latest trade balance impressed investors.

According to figures released by Destatis, Germany’s trade surplus jumped from €18.1bn to € 22.0bn in May, beating expectations it may have slipped and reversing some of the losses seen at the start of the second quarter.

The surplus was largely driven by increased demand for German goods from countries outside of the EU, with 17.3% of exports destined for so-called third countries such as China, Japan and the US.

However Germany is likely to face further criticism over its dominant trading position in the EU, with some leaders such as US President Donald Trump accusing the German government of exploiting the weaker Euro.

This also follows suggestions from the International Monetary Fund (IMF) last week that Berlin should increase its domestic investment spending to increase imports to help neutralise its huge surplus and to avoid destabilising the entire Eurozone by forcing other EU nations to run trade deficits.

Mehreen Khan of the Financial Times said;

‘The size of Germany’s twin surpluses has come in for criticism from the Trump administration, which has accused Berlin of exploiting an undervalued currency.’

‘The likes of the EU and the International Monetary Fund have also urged the German government to make the most of its healthy public finances and spend more money in the domestic economy.’

Also of some concern to investors was the recent surge in imports as accelerating domestic consumption saw imports rise faster than exports in May with year-on-year growth swelling by 16.2% and 14.1% respectively.

Australian Dollar (AUD) Sentiment Downbeat on Prediction Currency Will Weaken this Year

Sentiment in the Australian Dollar slumped this morning following a report from National Australia Bank’s (NAB) FX strategy team in which the bank suggests that the ‘Aussie’ is overvalued and is set to drop significantly before the end of the year.

NAB’s analysts put this down to the Reserve Bank of Australia’s (RBA) decision to leave its neutral bias in place at its latest monetary policy meeting, the move which sent the Australian Dollar plummeting last month comes despite the strengthening of labour market conditions in recent months.

With the underlying expectation that the RBA is likely to remain committed to its current monetary policy the NAB suggests that AUD will end the year notably lower.

EUR AUD Forecast: Coeure Speech to Point to Further ECB Dovishness?

Looking ahead the EUR AUD exchange rate may cede some ground on Tuesday following a speech by European Central Bank (ECB) policymaker Benoit Coeure.

Economists predict that Coeure will reaffirm the Bank’s commitment to its accommodating monetary policy, likely saying that the ECB’s stimulus programme is still necessary despite the stellar performance of the Eurozone economy since the start of the year.

Meanwhile the Australian Dollar may rally overnight tonight should the latest Business Confidence figures from NAB report an uptick in confidence in June.

Current Interbank Exchange Rates

At the time of writing the EUR AUD exchange rate was trending around 1.5002 and the AUD EUR exchange rate was trending around 0.6664.