Latest Inflation Figures from Eurozone Fail to Cause EUR/AUD Movement
The Euro (EUR) has found itself rangebound against the Australian Dollar (AUD) today, partly due to news of rising Eurozone inflation in September being offset by more Italian budget drama and a lack of AUD direction.
Monthly and annual price growth in the Eurozone was confirmed higher, with the year-on-year inflation rate rising to 2.1%.
This is significant as it means inflation has risen above the European Central Bank’s target range of 2.0% and could herald the bringing forwards of an interest rate hike.
Ordinarily, this would trigger a rise in EUR/AUD.
‘No Sign’ of a Slowdown in Australian Economy Says Bank
Ahead of tomorrow’s Australian employment figures, an analyst at a leading bank has insisted that there are no signs the burgeoning trade war between the US and China is having any negative effects on the Chinese industrial economy.
With China being Australia’s largest export market, any signs of weakness there have a knock-on effect for Australia.
Speaking about the Macquarie Bank’s China Business Cycle Indicator (MBCBCI) the analyst said:
‘The MCBCI continued to track sideways in October, with a modest dip to 50.8, well within the range that could be accounted for by statistical volatility,’
‘This suggests that there is little evidence that the imposition of US tariffs on Chinese exports – the latest escalation took effect on 24 September — has had a meaningful impact on Chinese industrial activity.’
If correct, this will come as welcome news to AUD investors, who had been concerned about the indirect impact of US tariffs on Australian growth.
Rejection of Italian Budget Plans Pressures EUR/AUD Exchange Rate
The positive Euro (EUR) sentiment in the wake of the better-than-expected inflation figures was offset to a greater extent by Italy’s budget problems, which continue to have ramifications for the Eurozone and the wider EU.
Italy’s coalition government made its budget proposal a few weeks ago, but was heavily criticised by the EU for breaching spending deficit limits at the time.
Despite the criticism, the Italian government has offered virtually no concessions over the matter, and it now appears that the European Commission will reject the budget.
EU Commissioner Guenther Oettinger has confirmed that this is the case, stating bluntly that: ‘It has been confirmed that Italy’s budget for 2019 is not compatible with the commitments that exist in the EU.’
This is the latest blow to Eurozone confidence, and follows yesterday’s disappointing economic sentiment indexes.
A sharp decline from -10.6 to -24.7 in the German ZEW economic sentiment survey for October put further pressure on the single currency, as it indicated a continued deterioration of confidence within the Eurozone’s powerhouse economy.
EUR/AUD Outlook: Australian Employment Data in Focus
Tomorrow sees a raft of Australian employment data being released, with reserve Bank of Australia (RBA) Deputy Governor Guy Debelle warning that there might be no further wage growth unless unemployment continues to fall.
With greater wage growth being seen as a prerequisite for the bank to consider hiking interest rates Mr Debelle’s comments have dented AUD demand today.
After the employment data, which also includes a business confidence reading, the next noteworthy Australian data release will not be until next week, and comes in the form of Q3 inflation.
In a sparse data calendar, we will similarly have to wait until next Tuesday for some Eurozone data, taking the form of a consumer confidence reading for October.
As it stands, economists forecast Eurozone confidence will improve this month, which could lead to EUR/GBP exchange rate gains, unless there are any political upsets in the meantime.