Australian Dollar Exchange Rates Falter as Sharp Increase in Chinese Exports Boosts Trade War Fears
Although January’s Australian trade balance strongly bettered forecast the Euro to Australian Dollar (EUR/AUD) remained on a positive trend, albeit a narrow one.
While the sharper-than-expected widening of the trade surplus suggests that the Australian economy is in a healthier state than previously thought this was not enough to bolster the appeal of the antipodean currency.
A solid raft of Chinese trade data, which showed exports leaping 44.5% on the month, sparked fresh fears over the prospect of an imminent global trade war.
This unexpectedly strong uptick in exports is likely to encourage an intensification of the Trump administration’s protectionist rhetoric, to the detriment of market risk appetite.
If the US pushes forward with plans for substantial blanket tariffs on steel and aluminium imports this could see pressure on the Australian Dollar (AUD) increase further.
ECB Jitters Limit Euro Australian Dollar Exchange Rate Upside
Confidence in the Euro (EUR), meanwhile, remained somewhat limited as markets braced for the latest European Central Bank (ECB) policy meeting.
Investors forecast another rather dovish showing from ECB President Mario Draghi this afternoon, keeping EUR exchange rates on a relatively weak footing.
No real change in monetary policy is forecast at this stage, although there is speculation that the central bank could remove its easing bias from its statement.
As analysts at Rabobank noted:
‘We believe that removing the easing bias today allows the Governing Council to reiterate their confidence and gradually prepare the market for more substantial changes to the forward guidance later in the year, without sparking an overly hawkish market reaction.’
If the ECB takes any significant shift away from dovishness, though, this could still offer the EUR/AUD exchange rate a solid rallying point today.
Strong US Jobs Data Forecast to Limit Australian Dollar Demand
With fresh Australian data thin on the ground ahead of the weekend the downside potential of the EUR/AUD exchange rate is likely to remain somewhat limited.
However, the Australian Dollar is forecast to come under further pressure as a result of the latest US non-farm payrolls report.
Signs that the US labour market is continuing to tighten are likely to boost the odds of the Federal Reserve raising interest rates as many as four times in 2018, to the detriment of AUD exchange rates.
Further developments surrounding the US position on trade also look set to keep the Australian Dollar on a weaker footing in the near term, with metal prices vulnerable if the proposed tariffs go ahead.
Euro Exchange Rate to Benefit From Forecast Contraction in German Exports
Another potential EUR/AUD exchange rate rallying point could come on the back of January’s German trade data, providing that the Eurozone’s powerhouse economy demonstrates fresh signs of strength.
With imports forecast to contract on the month, pointing towards greater domestic resilience, the Euro could see another boost.
However, if the trade surplus narrows on the month this could exacerbate worries over the likely negative impact of US tariffs on the German economy.
If a trade war breaks out between the US and EU the appeal of the Euro is likely to diminish, with the Eurozone’s bullish run of growth set to suffer.