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Euro to Australian Dollar Exchange Rate Holds Gains despite Poor Eurozone Data

Despite positive comments from the new Reserve Bank of Australia (RBA) Governor the Euro to Australian Dollar exchange rate has been able to make fresh gains on Friday as risk appetite eases.

  • Lack of Fed action spurred Australian Dollar higher – Risk appetite strengthened after threat of imminent rate hike faded
  • ECB bulletin pointed towards less dovish outlook – Euro trended higher as odds of monetary loosening weakened
  • September’s Eurozone PMIs proved mixed – Slowing economic activity failed to weigh on EUR AUD exchange rate
  • IFO business sentiment in focus – Stronger German business confidence forecast to boost Euro demand

With fresh Australian data decidedly lacking at the end of the week the appeal of the ‘Aussie’ weakened, encouraging investors to engage in profit taking.

Fed Rate Hold and Confident RBA Comments Prompted Australian Dollar (AUD) Rally

Following the Federal Reserve’s decision to leave interest rates on hold once again the Australian Dollar (AUD) was prompted to trend higher as risk appetite surged. While the door appeared to be left open for a rate hike to come before the end of the year the US Dollar (USD) slumped sharply, driving investors to pile back into the higher-yielding ‘Aussie’.

This bullish mood was encouraged further by the more hawkish commentary of new Reserve Bank of Australia (RBA) Governor Philip Lowe, who refuted the suggestion that policymakers were ‘inflation nutters’. Investors read this as additional evidence that the RBA is moving away from an easing bias, a prospect that enhanced the appeal of the antipodean currency.

The Euro to Australian Dollar (EUR AUD) exchange rate was able to recover some ground on Thursday, however. Demand for the single currency picked up in response to the European Central Bank’s (ECB) Economic Bulletin, which gave the indication that the central bank is by and large content with the current level of interest rates. As this suggested that the ECB is less likely to consider further monetary easing, in the near future at least, the Euro was encouraged to trend modestly higher.

Disappointing Eurozone PMIs Failed to Dent EUR AUD Exchange Rate Uptrend

Although markets remain less than convinced that the Fed will be able to achieve an interest rate hike in 2016, risk appetite began to diminish on Friday morning. Given the strong gains made over the course of the week the ‘Aussie’ was subject to a bout of profit taking, especially in the absence of fresh domestic data.

Eurozone data proved rather mixed ahead of the weekend, with September’s provisional raft of PMIs offering limited encouragement to the Euro. While Germany’s manufacturing sector bettered expectations this was contrasted by a sharp slowing in the service sector, with growth dipping from 51.7 to just 50.6. This contributed to the Eurozone Composite PMI easing to a twenty-month low of 52.6, indicating that slowdown pressures are continuing to mount within the currency union.

As Rob Dobson, Senior Economist at IHS Markit, noted:

‘With inflationary pressures also still relatively benign and business confidence at service providers dipping to a 21-month low, the door remains open for policymakers to provide further policy support later in the year.’

Even so, this disappointing showing was not enough to knock the EUR AUD exchange rate off an uptrend, thanks to the more bearish mood of investors in regards to the Australian Dollar.

EUR AUD Exchange Rate Forecast: Robust German Business Confidence Could Boost Euro

Attention on Monday will be focused on the German IFO business sentiment survey, with any weakening in confidence set to weigh heavily on the single currency. However, if business confidence is found to have remained resilient despite persistent market anxiety then the EUR AUD exchange rate could extend its gains further. Signs of strength within the Eurozone’s powerhouse economy would go a long way to easing worries over the outlook of the common currency, although any fresh turmoil over Greece could still dent investor confidence in the near term.

With Australian data generally limited in the early week the ‘Aussie’ will remain primarily at the mercy of market risk sentiment. Bets on the odds of the Fed raising interest rates imminently are likely to drag on the antipodean currency, although weaker US ecostats could see the Australian Dollar shored up further.

Current EUR, AUD Exchange Rates

At the time of writing, the Euro to Australian Dollar (EUR AUD) exchange rate was on an uptrend at 1.4704, while the Australian Dollar to Euro (AUD EUR) pairing was slumped in the region of 0.6798.