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Euro to Australian Dollar Exchange Rate Gains Tempered as Central Bank News Leads to ‘Aussie’ Surge

Euro to Australian Dollar Exchange Rates Slip as RBA Interest Rate Cut Bets Lighten

Bets that the Reserve Bank of Australia (RBA) could cut Australia’s interest rates this year had caused broad weakness in the Australian Dollar (AUD) in recent weeks, but the Euro to Australian Dollar (EUR/AUD) exchange rate slipped today as RBA rate cut bets lightened.

After opening this week at the level of 1.5984, EUR/AUD spent most of the week so far climbing as the Euro (EUR) was much more appealing than the risky ‘Aussie’. EUR/AUD briefly touched on a fortnight high of 1.6071 yesterday.

Today though, market reaction to a surprisingly dovish Federal Reserve, as well as some Australian job stats that impressed investors, bolstered risk-sentiment and led to a surge in demand for the Australian Dollar.

As a result, EUR/AUD slipped back towards the week’s opening levels.

A lack of particularly impressive Eurozone data this week meant that it was unable to benefit from the Fed dovishness as much as the Australian Dollar was.

Euro (EUR) Exchange Rates Support Limited amid Lack of Strong Eurozone Data

Demand for the Euro has been fairly solid for the past week, but this has been mostly due to weakness in rivals – like the US Dollar (USD).

The US Dollar is the Euro’s biggest rival and the two currencies often share a negative correlation.

However, the latest bout of US Dollar weakness bolstered Australian Dollar demand more than the Euro, and the Euro was left supported only by the latest Eurozone data.

Markets are speculating that due to signs of improvement in Eurozone business confidence, the bloc’s economic outlook could be in for a recovery following months of slowdown.

That was supported by Tuesday’s economic sentiment stats from ZEW, which beat expectations in both Germany and the Eurozone as a whole.

Australian Dollar (AUD) Exchange Rates Rebound on Central Bank Developments

A number of factors making investors more willing to buy riskier, trade-correlated currencies, made the Australian Dollar more appealing today and helped it to rebound strongly from its recent lows.

Last night saw the Federal Reserve hold its March US policy decision – and the bank surprised many investors with a more dovish tone.

The bank had previously said it was considering further US interest rate hikes in 2019, but last night it signalled that there would be no further rate hikes nor any rate cuts this year.

The Fed’s cautious tone made investors more willing to take risks. Of all risky trade-correlated currencies, the Australian Dollar was particularly appealing due to this morning’s Australian job market stats.

While Australia’s employment change was weaker than expected and the participation rate unexpectedly slipped, this also took Australia’s key unemployment rate to 4.9% – its lowest level since 2011.

With the unemployment rate lower, market concerns that the Reserve Bank of Australia (RBA) could cut Australian interest rates this year lightened and the Australian Dollar was bought in relief.

Euro to Australian Dollar (EUR/AUD) Exchange Rate Investors Anticipate Eurozone Growth Data

The Euro has been unable to hold its gains against a resurgent Australian Dollar due to a lack of strong domestic support.

As a result, if tomorrow’s upcoming Eurozone ecostats beat expectations they could lead to some stronger demand for the shared currency.

Markit’s March PMI projections will be published tomorrow morning, and analysts expected mixed results. Manufacturing is expected to recover slightly but remain weak overall throughout the bloc.

If the PMI data beats forecasts, investors could become more optimistic about the Eurozone’s recovering economic activity and EUR/AUD may be able to advance slightly again.

However, if investors continue to buy risky trade-correlated currencies like the Australian Dollar to Euro’s potential for gains may be limited.

Other developments influencing risk-sentiment, such as the upcoming next round of US-China trade negotiations, could also influence Euro to Australian Dollar (EUR/AUD) exchange rate movement.