With the global sense of risk appetite dented by the latest North Korean missile test the Euro was encouraged to make some modest gains against the Australian Dollar.
This helped the Euro Australian Dollar exchange rate to reverse the losses seen on the back of August’s Australian labour market data, which proved largely better than expected.
Concerns over the latest escalation in global geopolitical tensions weighed heavily on the commodity-correlated ‘Aussie’, prompting investors to pile into less risk-sensitive assets instead.
Even so, the underlying support for the antipodean currency remains somewhat robust given Thursday’s labour market figures.
As analysts at NAB noted:
‘While we remain cautious about aspects of the economic outlook, we now believe the labour market will strengthen enough to allow the RBA to remove some of the emergency stimulus currently in place. We are pencilling in rate rises of 25bps in August and November of 2018 and a further two 25bp hikes in 2019, although the precise path will be data dependent.’
This may limit the upside potential of the EUR AUD exchange rate, even in the absence of any fresh domestic data in the short term.
However, if Tuesday’s Reserve Bank of Australia (RBA) meeting minutes prove to be less hawkish in nature this could weigh heavily on the appeal of the Australian Dollar.
Narrowed Eurozone Trade Surplus Could Raise Concerns Over Strong Euro
The mood towards the Euro could sour, however, if the Eurozone trade surplus narrowed in July.
Any signs of weakness within the domestic economy are likely to dent the single currency, raising the risk of the European Central Bank (ECB) maintaining a more dovish policy bias in the coming months.
A narrowing of the trade surplus could increase policymaker worries over the relative strength of the Euro, giving the ECB incentive to leave monetary policy looser for longer in order to prevent further appreciation.
Support for EUR exchange rates could also materialise on the back of disappointing US data, with the advance retail sales figure forecast to weaken markedly this afternoon.
US Dollar softness would benefit the Euro, thanks to the negative correlation of the EUR USD exchange rate, which could help the single currency to make further gains ahead of the weekend.
Hawkish commentary from members of the ECB Executive Board may equally offer the single currency a boost, with markets still hoping for hints that tapering of the quantitative easing program will start soon.
With a Reuters poll indicating that a majority of economists anticipate a move on the QE program in October the EUR AUD exchange rate could go on a bullish run on the back of any policymaker optimism.
Current EUR AUD Interbank Exchange Rates
At the time of writing, the Euro Australian Dollar exchange rate was trending narrowly in the region of 1.4890. Meanwhile, the Australian Dollar Euro exchange rate was trapped in a narrow range around 0.6714.