Euro Australian Dollar (EUR/AUD) Exchange Rate Falters on Disappointing Eurozone PMIs
As May’s round of Eurozone manufacturing and services PMIs fell short of forecast this left the Euro to Australian Dollar (EUR/AUD) exchange rate on a weaker footing.
Investors were not impressed to find further evidence that the Eurozone economy is losing momentum in 2018, prompting the Euro (EUR) to trend lower across the board on Wednesday morning.
With growth in both the French and German economies easing confidence in the outlook of the Eurozone as a whole naturally diminished.
Signs of weakness within the Eurozone’s powerhouse economy proved particularly discouraging, as Phil Smith, Principal Economist at IHS Markit, commented:
‘The flash PMI data indicate that the recent slowdown in Germany’s private sector continued into May. Business activity showed the weakest rise for over a year-and-a-half, and it was a case of slower growth across both the manufacturing and services segments of the economy.’
Even though the manufacturing and service sectors remained within expansion territory this was not enough to boost EUR exchange rates.
Risk Aversion Boosts EUR/AUD Exchange Rate as Trade War Fears Mount
However, the vulnerability of the Euro to Australian Dollar (EUR/AUD) exchange rate was limited thanks to a fresh decline in market risk appetite.
Demand for the Australian Dollar (AUD) generally eased as global trade tensions picked up once again.
There are concerns that a US-China trade war could still break out thanks to continued signs of dissatisfaction from within the White House over the progress of talks.
Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe did little to support AUD exchange rates, meanwhile, as he expressed concern over China’s debt mountain.
As a result the central bank appears likely to leave interest rates on hold for some time to come, to the detriment of AUD exchange rates.
Euro Australian Dollar (EUR/AUD) Exchange Rate Weakness Forecast on Political Jitters
Commentary from European Central Bank (ECB) policymakers could provoke further volatility for the Euro to Australian Dollar (EUR/AUD) exchange rate ahead of the weekend.
If Eurozone data continues to disappoint markets EUR exchange rates are likely to remain under pressure over the coming days.
Political jitters over Italy could also keep the Euro on a weaker footing in the near term, with investors nervous of the potential impact that the Eurosceptic government could have on the Eurozone.
Confidence in the Australian Dollar, meanwhile, may struggle to pick up in the absence of any fresh domestic data.
Unless market sentiment recovers AUD exchange rates look set to remain biased to the downside, especially if signs point towards the Federal Reserve pursuing a more aggressive pace of monetary tightening.
Even so, the Euro to Australian Dollar (EUR/AUD) exchange rate may still struggle to capitalise on any deterioration in risk appetite.