Euro to Australian Dollar Exchange Rate Benefits from Risk Aversion and US Dollar (USD) Weakness
Despite continued disappointing Eurozone data in recent weeks and a lack of fresh domestic support for the Euro (EUR), the Euro to Australian Dollar (EUR/AUD) exchange rate is attempting to climb again this week as investors sell risky trade-correlated currencies like the Australian Dollar (AUD).
Shifts in risk-sentiment left EUR/AUD volatile last week, but the pair ultimately only advanced slightly from 1.5851 to 1.5882 throughout the week.
This week so far, EUR/AUD has advanced to trend near the level of 1.5959 on Tuesday. The pair remained below last week’s best level of 1.6029 however.
Investors have been hesitant to pile into the Euro amid concerns about the Eurozone’s weakening economic outlook. However, the Australian Dollar has plunged on renewed US-China trade tensions, making it much easier for the Euro to Australian Dollar exchange rate to climb.
Euro (EUR) Exchange Rate Demand Limited amid Lack of Supportive Eurozone Data
Investors have steadied on the Euro so far this week but have been hesitant to make big moves on the shared currency with major global political events expected throughout the week.
Multiple global factors are making the Euro appear more appealing, despite a lack of particularly strong Eurozone data as well as a cautious European Central Bank (ECB) this year so far.
Most of the Euro’s strength so far this week has come from weakness in its biggest rival, the US Dollar (USD). As the US Dollar is negatively correlated to the Euro, the Euro has been rising as political jitters weaken the US currency.
On top of this, Tuesday’s Eurozone data was fairly solid.
France’s January consumer confidence report was expected to have edged higher to 88, but instead jumped from 86 to 91.
While this remained lower than average due to protests across France, the better-than-expected data helped the Euro to hold its gains.
Australian Dollar (AUD) Exchange Rates Slump as Global Trade Tensions Worsen
Part of the reason for the US Dollar’s (USD) weakness was due to news that US authorities had charged Chinese tech giant Huawei with multiple crimes.
The charges included bank fraud and obstruction of justice, as well as conspiracy to violate Iranian sanctions.
Huawei and China immediately rejected the charges, with China’s government calling the charges ‘immoral’.
With US-China relations already fragile, these developments were perceived as having made tensions between the nations worse again.
Konstantinos Anthis, Head of Research at ADSS, highlighted current geopolitical difficulties for traders:
‘The lack of progress in the US-China trade talks and the potential extradition of Huawei’s CFO from Canada to the US on criminal charges highlight a complex geopolitical landscape.’
Euro to Australian Dollar (EUR/AUD) Exchange Rate Investors Anticipate Australian Inflation Stats
Wednesday could be a major session for the Euro to Australian Dollar exchange rate, as major data from both the Eurozone and Australia will be published while US-China trade negotiations are also set to resume.
The Australian Dollar could spend most of the day reacting to Australia’s Q4 Consumer Price Index (CPI) inflation rate report. Australian inflation is expected to have slowed from 1.9% to 1.7% year-on-year in Q4.
If Australian inflation comes in lower than expected, it could worsen market fears that the Reserve Bank of Australia (RBA) may be more likely to cut Australian interest rates than hike them. This would help EUR/AUD to rise even higher.
The Euro would also find support if tomorrow’s French growth stats, Eurozone confidence figures or German inflation results impress investors.
Risk-sentiment could also see a major shift tomorrow, with US-China trade negotiations resuming and the Federal Reserve holding its January policy decision.
If Wednesday’s US news worsens global growth concerns or geopolitical tensions, the Euro to Australian Dollar (EUR/AUD) exchange rate may be in for further gains in the coming sessions.