Although the second quarter Italian gross domestic product bettered expectations to rise 1.5% on the year this was not enough to shore up the Euro.
While this stronger showing points towards a more robust Italian economy investors remain cautious ahead of the growth data for the Eurozone as a whole.
Forecasts point towards a solid uptick in growth from 1.9% to 2.1% on the year, which would signal that the currency union remains in a robust state of health.
However, after the disappointing quarterly German reading markets are jittery of the prospect of another downside surprise.
The relative strength of the US Dollar and increasing bets that the Federal Reserve will raise interest rates a third time in 2017 have also limited the appeal of the single currency.
Further volatility is likely for the Euro Australian Dollar exchange rate on Thursday with the release of the European Central Bank’s (ECB) latest monetary policy meeting minutes.
If the minutes reiterate the ECB’s reluctance to begin tapering its quantitative easing program in the near future this could weigh heavily on the Euro.
AUD Benefits as Signs Point Towards Improved Economic Momentum
A modest rebound in the Westpac leading index encouraged the Australian Dollar to trend higher across the board on Wednesday morning, as confidence in the domestic outlook improved.
However, as Bill Evans, Chief Economist at Westpac, noted:
‘While the Index only gives us a glimpse of the likely momentum in the first few months of 2018 it currently seems to be more consistent with our own view of the likely growth environment in 2018 than the forecast recently released by the Reserve Bank which is pointing to above trend growth in 2018 at 3.25%.’
With the Reserve Bank of Australia (RBA) likely to leave interest rates on hold for the foreseeable future the upside potential of the ‘Aussie’ remains rather limited.
Fresh weakness could be in store if July’s raft of Australian labour market data fails to impress markets, even after the RBA indicated that its concerns over domestic employment conditions had lessened.
If the headline employment change figure falls short of forecast this may offer the EUR AUD exchange rate a strong rallying point, particularly if the participation rate also falls back.
On the other hand, so long as the labour market continues to demonstrate tightening this should keep the Australian Dollar on a stronger footing.
Any fresh deterioration in geopolitical tensions and market risk appetite could well dent the antipodean currency in the coming days, though.
Current EUR AUD Interbank Exchange Rates
At the time of writing, the Euro Australian Dollar exchange rate was slumped in the region of 1.4903. Meanwhile, the Australian Dollar Euro exchange rate was making strong gains at 0.6709.