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Euro Australian Dollar (EUR/AUD) Exchange Rate Claws Back Losses ahead of US Fed Rate Decision

Looming US Fed Rate Decision Propels Euro Australian Dollar (EUR/AUD) exchange rate

The Euro Australian Dollar (EUR/AUD) exchange rate clawed back some of its recent losses this morning, capitalising on rising risk aversion amongst the markets and the looming US Federal Reserve Rate decision.

The Australian Dollar is currently weighed down by the possibility that the Federal Open Market Committee (FOMC) will vote for a rate hike tonight, an event that could drive demand for the US Dollar (USD) higher whilst siphoning value away from the riskier commodity currencies like the ‘Aussie’ Dollar and the New Zealand Dollar (NZD).

This expectation is largely driven by recent robust performance of the US economy, with US Fed Chairman Jerome Powell and a variety of Fed Presidents highlighting the need to raise the base interest rate in order to prevent the economy from overheating.

With this move pretty much priced in by the markets, the forward guidance for the bank could also take centre stage, with any indication of 4 rate hikes this year, rather than 3 liable to hurt the ‘Aussie’ Dollar even more.

RBA Meeting Minutes Prove Dovish – AUD Exchange Rates Struggle to Find Support

Weak wage growth and high household debt has put the Reserve Bank of Australia (RBA) on a different trajectory to the US Fed, with the recent RBA meeting minutes underlining expectations that the central bank won’t be moving for a rate hike for some time.

The official cash rate has been stuck at 1.5% since August 2016, with board members hoping that the ultra-easy policy would help bring unemployment down to 5.5% and allow inflation to push closer to the bank’s target levels.

Wage growth has remained rather stagnant, however, and the central bank has simply maintained its outlook of ‘cautious optimism’.

The meeting minutes were no different, pointing to household debt as still warranting ‘careful monitoring’.

The RBA Governor Philip Lowe has, admittedly, asserted that the Reserve Bank’s next rate move will be up, rather than down, but lacking data to back-up this outlook it seems unlikely that the central bank will become hawkish for some time.

Australian Labour Market Statistics and EU Markit Assessments Ahead – What can we Expect for the EUR/AUD Exchange Rate?

After the dust has settled on this evening’s US Fed rate decision markets will likely turn towards tomorrow’s Eurozone Markit PMI figures, with any indication of growth liable to give the Euro another foot up against the ‘Aussie’ Dollar.

It should also be noted, however, that tomorrow’s Australian labour market statistics could give the Australian Dollar a small lift – though this will be dependent on a sizable rise in employment numbers.