Italian Election Uncertainties Weigh on Euro to Australian Dollar Exchange Rate
After last week’s mixed movement, the Euro to Australian Dollar (EUR/AUD) exchange rate could be in for another week of fluctuations as Euro (EUR) investors anticipate major Eurozone ecostats and political developments.
Despite hitting a low of 1.5609 and a high of 1.5752 last week, EUR/AUD opened the week at the level of 1.5670 and closed the week just barely above this level. The pair continued to fluctuate near 1.5670 on Monday.
While political uncertainty in Australia and low market demand for risk-correlated currencies weighed heavily on the Australian Dollar (AUD), the Euro’s gains were limited.
This was largely due to market uncertainty ahead of key political developments expected in Italy and Germany over the coming week.
On the 4th of March – next Sunday – Italy will hold its 2018 general election. Germany’s SPD Party is expected to announce the results of its coalition poll on the same day.
Despite recently persistent Euro strength, analysts at ING Bank reckon that the market may still be underestimating the risks of these events;
‘We think the market may be underestimating the risks here – especially given that the Euro’s pro-cyclical and portfolio inflow-driven rally could run out of steam if political risks stay slightly elevated in the near-term,’
Australian Dollar (AUD) Exchange Rates Limp Amid Lack of Support
Last week’s Australian ecostats, as well as recent Australian political developments, have given investors little reason to buy the Australian Dollar.
Investors were disappointed by Australia’s Q4 wage growth results, which beat expectations overall but indicated that private sector worker pay was still only growing at a slow 1.9% year-on-year.
On top of this, the last week had also seen Australia’s ex-Deputy Prime Minister, Barnaby Joyce, resign from his position following a scandal.
His replacement was announced to be Michael McCormack on Monday. However, McCormack’s comparatively low profile has meant political uncertainty in Australia remains high.
Recent Eurozone Data Fails to Boost Euro (EUR) Exchange Rates
The Euro to Australian Dollar (EUR/AUD) exchange rate’s gains have been further limited by Eurozone data in the past week, which has been generally unimpressive.
Eurozone PMI projections and confidence stats for February largely fell short of expectations last week, indicating that while Eurozone growth was still strong it was not quite as strong as forecast.
On top of this, Friday’s Eurozone inflation results from January revealed that, as expected, Eurozone inflation had slowed last month. However, monthly inflation did not contract as much as expected and the yearly core inflation rate rose to 1% as forecast.
Euro to Australian Dollar (EUR/AUD) Forecast: Slews of Eurozone Data Ahead
This week has the potential to be a big one for Euro trade as major Eurozone economic and political news will unfold. As a result, the Euro is likely to drive movement in the Euro to Australian Dollar (EUR/AUD) exchange rate.
Tuesday will see a slew of notable Eurozone ecostats, including the bloc’s final February confidence survey results, as well as February Consumer Price Index (CPI) projections for Spain and Germany.
Wednesday will follow with even more influential data, such as German consumer confidence, German unemployment data, and most vitally the Eurozone’s February inflation projections.
If Eurozone inflation beats expectations, it could boost speculation that the European Central Bank (ECB) could be pressured to tighten Eurozone monetary policy sooner than expected.
However, political uncertainty ahead of next Sunday’s Italian general election and the SPD poll results in Germany could keep pressure on the Euro regardless of data.
As for the Australian Dollar, housing data due on Tuesday and manufacturing PMI stats on Thursday could influence the ‘Aussie’. On top of that, AUD could continue to react to domestic political developments and risk-sentiment.