Contracting German Economy Weighs on Euro Australian Dollar (EUR/AUD) Exchange Rate
The disappointing nature of the third quarter German gross domestic product data limited the appeal of the Euro (EUR) this morning.
As the data fell short of forecast to show a -0.2% contraction in growth on the quarter the mood towards the single currency soured.
With the Eurozone’s powerhouse economy continuing to lose its momentum EUR exchange rates came under fresh pressure, as hopes for a rebound in the fourth quarter continued to diminish.
This left the Euro to Australian Dollar (EUR/AUD) exchange rate struggling to gain any momentum, even as European political worries temporarily eased.
Commenting on the GDP data Carsten Brzeski, Chief Economist at ING, noted:
‘The outlook for the German economy is still positive and swan songs will have a short shelf-life but the reputation of the invincible strong man (or woman) of Europe has received some scratches. After the latest political developments, today’s disappointing growth data is yet another wake-up call that political stability and strong growth are by no means a given.’
Australian Dollar (AUD) Exchange Rates Soften on Underwhelming Chinese Retail Sales
A disappointing decline in October’s Chinese retail sales data weighed on the Australian Dollar (AUD), meanwhile, as demand for risk-sensitive assets weakened.
With the world’s second largest economy showing signs of losing its growth momentum the appeal of commodity-correlated currencies such as the Australian Dollar diminished.
Although the third quarter Australian wage price index picked up from 2.1% to 2.3% on the year, in line with forecasts, this failed to give AUD exchange rates any particular support.
As forecasts point towards an uptick in October’s unemployment rate investors are wary of favouring the Australian Dollar at this juncture.
If tomorrow’s labour market data fails to paint an encouraging picture of the domestic outlook this may give the EUR/AUD exchange rate a fresh boost.
Narrowed Eurozone Trade Surplus to Limit Euro (EUR) Appeal
The Euro could face further weakness, however, on the back of September’s Eurozone trade balance.
If the trade surplus narrows significantly this would give investors fresh reason to doubt the strength of the currency union’s outlook.
Even though trade tensions between the US and China have shown some indications of a potential thaw in recent days the increased sense of global protectionism is still likely to have negatively impacted the Eurozone.
Unless the economy shows signs of shaking off the pressure of easing global growth and weaker trade the Euro looks set to remain on the back foot.
Comments from European Central Bank (ECB) President Mario Draghi could encourage the EUR/AUD exchange rate to recover some ground ahead of the weekend, though.
As long as Draghi maintains an optimistic tone on monetary policy the mood towards the Euro is likely to improve.