Euro to Australian Dollar Exchange Rate Climbs on Trade War Jitters
Tuesday saw the phrase ‘trade war’ dominating global headlines once again, as US President Donald Trump ramped up trade tariff action against China. This made it easier for the Euro to Australian Dollar (EUR/AUD) exchange rate to hit a fresh monthly high.
Still, EUR/AUD was unable to hold its best levels during Tuesday trade. After opening this week at the level of 1.5597, EUR/AUD briefly touched on a one-month-high of 1.5744 on Tuesday morning before slipping and trending closer to 1.5665 at the time of writing.
The Euro (EUR) was unable to hold its best levels against the Australian Dollar (AUD) today, due to another set of cautious comments from European Central Bank (ECB) President Mario Draghi.
This was despite the Reserve Bank of Australia’s (RBA) latest meeting minutes also taking an unexpectedly dovish shift, as investors were hesitant to sell the Australian Dollar further.
Euro (EUR) Exchange Rates Fail to Hold Best Levels as ECB President Remains Cautious
Not leaving the Euro (EUR) much room to breathe following its plunge last week, European Central Bank (ECB) President Mario Draghi followed up on Tuesday morning with another set of cautious comments about Eurozone monetary policy.
Investors sold the Euro last week when the ECB indicated it did not plan on hiking Eurozone interest rates at all until mid-2019 at the earliest.
While the Euro recovered slightly from its lows on Friday and Monday, ECB President Draghi’s comments on Tuesday reasserted that his signal was likely intended to be taken as cautious.
In his latest speech in Sintra, Portugal, Draghi stated:
‘We will remain patient in determining the timing of the first rate rise and will take a gradual approach to adjusting policy thereafter,
The path of very short-term interest rates that is implicit in the term structure of today’s money-market interest rates broadly reflects these principles.’
After his speech, the Euro was sold from its highs versus the Australian Dollar – though key support levels supported ‘Aussie’ trade too.
Australian Dollar (AUD) Strength Limited by Reserve Bank of Australia’s (RBA) Caution
The Australian Dollar was able to rebound from its worst levels against the Euro on Tuesday – but largely due to market hesitance to sell the weak currency any lower than it has already hit.
Key psychological support levels helped the ‘Aussie’ from avoiding further losses, despite global and domestic factors weighing on the currency and leaving it generally unappealing.
Not only have concerns about a potential US-China trade war escalated so far this week, but the latest Reserve Bank of Australia (RBA) meeting minutes took an unexpected shift towards the dovish.
In May, the RBA had indicated a confidence that Australia’s economy was improving enough for the next monetary policy move to be an interest rate hike.
However, in June’s meeting minutes report that line was removed. This caused market concerns that the RBA was once again considering another interest rate cut as its next move instead.
Still, the Australian Dollar avoided another selloff due to analysts noting that this may simply be a miscommunication of signals on the RBA’s part.
According to Paul Dales from Capital Economics, the change ‘seems to be another example of miscommunication, rather than the RBA sending a strong signal that it’s much less keen to raise interest rates’.
Euro to Australian Dollar Forecast: Could EUR/AUD Return to Best Levels?
Demand for the Euro to Australian Dollar (EUR/AUD) exchange rate is limited due to the European Central Bank’s (ECB) cautious outlook on Eurozone monetary policy, but the Australian Dollar is under significant pressure itself.
As long as trade tensions between the US and China remain bad or get worse, demand for risky trade-correlated currencies like the Australian Dollar will remain limited.
It is also unlikely that upcoming Australian data will be particularly supportive or influential, though Reserve Bank of Australia (RBA) Governor Philip Lowe’s speech on Wednesday could influence AUD if it surprises.
The Euro, on the other hand, could strengthen in the coming sessions if upcoming notable Eurozone data impresses investors.
Thursday will see the publication of the Eurozone’s June consumer confidence projections, followed on Friday by Markit’s Eurozone PMI projections for June.
If the Eurozone’s latest PMIs beast forecasts it could indicate that the bloc’s growth is more resilient than expected, which may help the Euro to Australian Dollar (EUR/AUD) exchange rate to near its best levels again.