Eurozone Services, Retail Sales, miss their Mark – Euro Australian Dollar (EUR/AUD) Exchange Rates Unperturbed
The Euro Australian Dollar (EUR/AUD) exchange rate gained momentum on Tuesday, unperturbed by some weak data from the bloc and bolstered by a dovish rate decision from the Reserve Bank of Australia (RBA).
According to Eurostat, retail sales in the bloc increased by a disappointing 0.1% in April month-on-month, down from the previous period’s score of 0.4% and the forecast of a 0.5% rise.
Beyond this, Eurozone business activity outright slowed in May according to Markit, with forward-looking indicators suggesting a further loss of momentum in the months ahead.
IHS Markit’s final composite PMI reading fell to an 18-month low of 54.1 in May, down from April’s score of 55.1 but still above the 50-point mark that separates growth from contraction.
The services result proved similarly poor, printing down at 53.8.
With these important economic indicators failing and political uncertainty spiking in the Eurozone the overall outlook for the bloc seems to have taken a turn for the worse, a result that could push the European Central Bank (ECB) towards maintaining its bond-buying scheme beyond its expiry date of September this year.
Nonetheless, this news was not enough to prevent EUR/AUD from climbing, with the current dovishness of the RBA keeping the Australian Dollar on the back foot.
Australian Dollar (AUD) Exchange Rates Tumble as RBA Remains Cautious
The Australian Dollar (AUD) came under fresh pressure today as investors responded to news that the Reserve Bank of Australia kept its national interest rate on hold for the 20th month in a row.
The central bank cited ongoing concerns regarding the housing market and claimed, once again, that low interest rates were ‘continuing to support the Australian economy’.
The accompanying statement also asserted the further progress is required in ‘reducing unemployment and having inflation return to target’,
The statement read:
‘Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time’.
This outlook crippled the ‘Aussie’ Dollar, with expectations of low inflation and weak employment growth liable to bolster EUR/AUD in the near-term.
Euro Australian Dollar (EUR/AUD) Exchange Rate Forecast: Australian GDP on the Horizon
Tomorrow could be another big day for the Euro Australian Dollar (EUR/AUD) exchange rate, with the highly significant Australian Q1 GDP reading due in the early hours, followed by the AiG performance of construction index due later on Wednesday evening.
Investors currently expect the Q1 GDP result to print slightly higher than the previous estimate, rising from 2.4% to 2.7% year-on-year and 0.4% to 0.8% on a quarterly basis.
Given the RBA’s focus on inflation and unemployment, however, it seems unlikely that a rise will do much to effect the outlook for the ‘Aussie’ Dollar, even if it does bode quite positively for growth in the first half of the year.
In this regard, we could see EUR/AUD extend its lead, though tomorrow’s retail PMI reading for the bloc will also have the potential to cause volatility.