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Euro to Australian Dollar Exchange Rate Tumbles as Fed Caution Causes Risk-Sentiment Surge

Euro to Australian Dollar Exchange Rate Struggles to Hold Despite Strong German Job Stats

For most of the week, the Euro to Australian Dollar (EUR/AUD) exchange rate has been trending lower as hopes for US-China trade developments boost market risk-sentiment. A dovish Federal Reserve left investors even more hungry for risk today.

After opening this week at the level of 1.5665, EUR/AUD has trended largely with a downside bias. EUR/AUD has lost over a cent throughout the week so far and trended near a fortnight low of 1.5535 at the time of writing on Thursday.

This week’s Eurozone data has been mixed overall, but much of Thursday’s stats beat market forecasts. Despite this though, the Euro (EUR) was unable to hold its ground against a strong Australian Dollar (AUD).

Market demand for risky trade-correlated currencies like the Australian Dollar surged on Thursday, as investors reacted to an unexpected dovish tone from Federal Reserve Chairman Jerome Powell.

Euro (EUR) Exchange Rates Fail to Benefit Notably from Stronger Eurozone Data

Most of Thursday morning’s Eurozone ecostats beat market expectations, but these were not enough to make the Euro particularly appealing versus a stronger Australian Dollar.

Germany’s key November unemployment rate unexpectedly improved from 5.1% to 5.0%, the best rate on record and an indication that the German market remained strong enough to support German growth, weakened by other factors like trade jitters.

Many of the Eurozone’s November business confidence figures beat forecasts too. Business confidence unexpectedly improved to 1.09 rather than sliding to the expected 0.96.

The economic sentiment avoided the predicted fall to 109, but still slipped to 109.5.

Despite all the stronger than forecast data, investors were hesitant to buy the Euro.

Data continues to indicate that Eurozone Q4 growth will still have slowed notably from earlier in the year, and the shared currency typically doesn’t benefit from higher risk-sentiment like the Australian Dollar does.

Australian Dollar (AUD) Exchange Rates Bolstered by Cautious Fed

Australia’s underwhelming new home sales and private capital expenditure stats had little impact on the Australian Dollar on Thursday, as markets focused on the latest comments from Federal Reserve Chairman Jerome Powell.

Bullish investors had hoped for Powell to hint that US interest rates could rise much higher above the neutral rate if data was strong enough.

However, not only did Powell indicate that US interest rates were currently ‘just below’ the neutral rate. The comments marked a shift in tone, as Powell had said in October that rates were still a ‘long way from neutral’.

His comments ignited further speculation that the Federal Reserve was nearing the end of its monetary policy tightening cycle. This made investors much more comfortable taking risks and the Australian Dollar strengthened considerably.

The Australian Dollar has also benefitted from speculation that the US and China could soon reach a breakthrough on longstanding trade tensions.

Euro to Australian Dollar (EUR/AUD) Exchange Rate Investors Turn Attention to G20

At the end of the week, a G20 summit will be held in Argentina. Already expected to be a major event, the primary focus for financial markets will be an anticipated meeting between US President Donald Trump and China President Xi Jinping.

The Presidents are expected to attend a formal dinner. According to US Director of National Economic Council, Larry Kudlow, there is a chance that Trump and Xi could reach some kind of trade breakthrough so long as both are open to potential concessions.

As US-China trade jitters have been a major cause of risk-sentiment shifts for much of 2018, any meaningful signs of de-escalation could lead to a surge in risk-sentiment and the risky trade-correlated Australian Dollar.

This means the Euro to Australian Dollar (EUR/AUD) exchange rate could be in for even further losses into next week.

Friday will see the publication of some notable ecostats, including Australian private sector credit, German retail sales and French inflation projections.

The Eurozone’s overall November inflation projections have the biggest potential to be influential and could cause some late-week Euro to Australian Dollar (EUR/AUD) exchange rate movement.