Euro to Australian Dollar Exchange Rate Struggles to Hold Best Levels as Spanish Inflation Disappoints
Despite a lack of support for the Euro (EUR) in recent sessions, the Euro to Australian Dollar (EUR/AUD) exchange rate continued to benefit from Australian Dollar (AUD) weakness until Tuesday, when disappointing Eurozone stats weighed on the pair.
EUR/AUD jumped from 1.5934 to 1.6054 last week and on Tuesday morning the pair touched a high of 1.6135. This was the best EUR/AUD level since August 2015. The pair has struggled to maintain this multi-year high though.
Tuesday saw the publication of some notable Eurozone ecostats, including Spanish Consumer Price Index (CPI) projections for March and Eurozone confidence survey figures from March.
Most of the day’s data fell short of expectations. The Spanish inflation data, in particular, was concerning and dampened the hawkishness of investors hoping for the European Central Bank (ECB) to take a more hawkish tone on monetary policy.
With Eurozone data falling short and the Australian Dollar finding support from a fresh market risk-rally, EUR/AUD slipped back from its best levels.
Euro (EUR) Exchange Rates Slip as Eurozone Inflation Concerns Persist
Spain’s March Consumer Price Index (CPI) projections were forecast to have improved over the previous figures, but the results were mixed.
The month-on-month inflation projection remained at 0.1%, rather than rising to the expected 0.3%. The yearly figure, on the other hand, only edged higher from 1.1% to 1.2% rather than the forecast 1.5%.
The data indicated that inflation in the Eurozone was still subdued, perhaps more than expected. According to Thu Lan Nguyen from Commerzbank;
‘The (Eurozone) economy has been doing extremely well, but inflation is still lagging. The market has been focused on the economy, now the economy is stalling, this is adding to investors’ doubt,
The market is pricing in rate hikes as soon as spring next year, in our view it’s too optimistic. We assume the market will price these hikes out in the course of this year and because of that the Euro will weaken.’
The latest consumer inflation expectations print was underwhelming too, sliding from 18 to 16.1.
A set of Eurozone confidence stats for March largely fell short of expectations, with business confidence falling from 1.48 to 1.34 rather than the expected 1.39.
However, analysts hope for Eurozone sentiment to improve again if concerns of a possible US-sparked ‘trade war’ continue to lighten.
Australian Dollar (AUD) Exchange Rates Boosted by Risk-Sentiment
Hopes that the US and China could talk or negotiate issues and clashes on trade have lightened broad market concerns about the possibility of a US-sparked ‘trade war’ this week.
This made investors less hesitant to buy risky trade-correlated currencies like the Australian Dollar. As a result, AUD has been more appealing in recent sessions.
Still, its gains against the Euro have been limited amid a lack of supportive Australian data or commodity news.
Tuesday saw the publication of Australia’s February new home sales stats from HIA. The figure improved from -2.1%, but still printed a contraction of -0.7%.
Prices of Australia’s most lucrative commodity, iron ore, have also seen significant losses in March overall. This has limited the Australian Dollar’s appeal to investors looking for riskier investments.
Euro to Australian Dollar (EUR/AUD) Forecast: Eurozone Inflation Remains in Focus
Investors may find a reason to keep selling the Euro to Australian Dollar (EUR/AUD) exchange rate from its multi-year-highs later this week, if upcoming Eurozone ecostats continue to disappoint investors.
Thursday will see the publication of major March data from Germany, including unemployment and inflation projections.
German inflation is forecast is forecast to remain at 0.5% month-on-month, but improve from 1.4% to 1.7% year-on-year. If the German inflation results beat expectations, it could help EUR/AUD hold nearer its highs.
However, disappointing inflation data would make investors doubt the likelihood of a more hawkish tone from the European Central Bank (ECB) any time soon. This would likely lead to EUR/AUD losses.
Friday will see the publication of French and Italian inflation projections too, which will also have an influence on the Eurozone inflation outlook.
Of course, if markets remain confident that the US and China will look for resolutions on trade through talks, investors are likely to continue to find risky currencies like the Australian Dollar more appealing too.