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Euro Extends Losses Against Australian Dollar in Spite of Increased Risk Aversion

Confidence in the Euro weakened markedly in the wake of the European Central Bank’s (ECB) July monetary policy meeting minutes, which appeared more dovish in tone than markets anticipated.

As policymakers expressed concern over the relative strength of the single currency this gave investors fresh incentive to sell out of the Euro.

The odds of the ECB beginning to taper its quantitative easing program in the near future consequently seemed to diminish on the back of the minutes, leaving the Euro Australian Dollar exchange rate on a weaker footing.

However, as Marc Chandler, Global Head of Currency Strategy at BBH, noted:

‘Our operating assumption is that the ECB’s record like other central banks’ minutes is not simply a transcript of what was said. It is a communication tool. Thought is given to what goes in it. There are sufficient conditions in the ECB’s statement that is still a relatively low level of concern. The overshooting was not realised it was “possible.” It is not happening now but could “in the future.’

Although risk appetite weakened sharply ahead of the weekend, in part due to political developments in the US, this was not enough to shore up the EUR AUD exchange rate, however.

Demand for the single currency could pick up next week, though, if August’s ZEW economic sentiment surveys point towards improved sentiment in Germany and the wider Eurozone.

A strong showing here could improve confidence in the underlying health of the currency union, boosting EUR exchange rates even if the ECB looks set to remain on hold for longer.

On the other hand, if the Eurozone economy fails to show fresh signs of robustness this could weigh heavily on the appeal of the single currency.

Australian Dollar Recovers After Less Encouraging Jobs Report

After investors reacted with some disappointment to Australian labour market data on Thursday the ‘Aussie’ remained under pressure.

As growth in part-time employment provided the only real positive momentum within the labour market this did not encourage particular confidence in the domestic outlook.

Support for the Australian Dollar diminished further in response to the latest resurgence in market risk aversion, as terror attacks in Spain provoked a fresh flight towards safe-haven assets.

Even so, with the Federal Reserve looking less likely to achieve a third interest rate hike before the end of the year and with the US Dollar on the back foot once again the antipodean currency rallied ahead of the weekend.

With the release of Australian data rather limited in the coming days the EUR AUD exchange rate may soon regain some of its lost ground, though.

However, if global geopolitical tensions do not show any signs of escalating this could limit the vulnerability of the Australian Dollar in the short term.

Current EUR AUD Interbank Exchange Rates

At the time of writing, the Euro Australian Dollar exchange rate remained slumped around 1.4826. Meanwhile, the Australian Euro exchange rate was making solid gains in the region of 0.6744.