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Euro Australian Dollar Exchange Rate Dragged Lower as Australian Unemployment Falls

Lower Australian Unemployment Weighs on Euro Australian Dollar Exchange Rate

A better-than-expected improvement in the Australian unemployment rate helped to push the Euro to Australian Dollar (EUR/AUD) exchange rate.

While forecasts had pointed towards the unemployment rate falling in January the dip from 6.6% to 6.4% gave the Australian Dollar (AUD) a solid boost against its rivals.

Although unemployment remains high by historical standards investors still took encouragement from the fact that the labour market has shown signs of strengthening at the start of 2021.

However, the gains of AUD exchange rates were ultimately limited by the underlying details of the jobs report.

As the fall in unemployment was at least partially thanks to a decline in the corresponding participation rate this put a dampener on demand for the Australian Dollar.

Softer Australian PMIs May Offer EUR/AUD Exchange Rate Rallying Point

With markets expecting to see signs of a softening in both February’s Australian manufacturing and services PMIs the mood towards the Australian Dollar could sour further.

Even if both PMIs remain firmly in expansion territory any evidence that the economy lost some of its earlier momentum this month may give the EUR/AUD exchange rate a leg up.

On the other hand, worries over the outlook of the Australian economy could ease if January’s retail sales data shows a strong improvement on the month.

If sales rebound as forecast, reversing at least some of December’s sharp -4.2% contraction, this would signal a greater level of confidence among Australian consumers.

As long as consumers show signs of shrugging off the ongoing tensions over Covid-19 and the health of the global economy this may see the Australian Dollar pushing higher ahead of the weekend.

Fresh Contraction in Eurozone Services PMI Forecast to Weigh on Euro Demand

Fresh weakness may be in store for the Euro (EUR) on Friday, meanwhile, with the release of the latest raft of Eurozone manufacturing and services PMIs.

While the manufacturing sector looks set to deliver another solid month of growth this may fail to offer any particular reassurance to EUR exchange rates.

Greater focus looks set to fall on February’s services PMI, with investors expecting to see another monthly contraction from the sector.

As long as the service sector remains trapped in a state of contraction the odds of an imminent double-dip recession are likely to mount, to the detriment of the single currency.

Unless the services PMIs can show signs of edging back towards the neutral baseline of 50 the appeal of the Euro looks set to weaken further before the end of the week.

Although a strong manufacturing sector performance could go some way towards balancing out service sector weakness this is unlikely to be enough to shore up the Euro to Australian Dollar exchange rate.