The Euro to Australian Dollar (EUR/AUD) exchange rate climbed to its strongest level in a week on Wednesday as falling commodity prices weighed on the ‘Aussie’ and positive data from the Eurozone buoyed the single currency.
The Euro to Australian Dollar (EUR/AUD) exchange rate climbed to a session high of 1.3972
Data released by Eurostat showed that construction output across the Eurozone increased for a second consecutive month in January and rose at a faster pace than forecast. On a month on month basis Construction sector output increased by 1.9%, and jumped by 3% on an annual basis after rallying strongly from the decline of -3.5% seen previously. Economists had been expecting a yearly rise of 1.2%.
The Euro also found support from a separate report, which showed that the regions trade surplus improved due to a fall in imports and stagnation in exports. According to Eurostat, unadjusted imports fell by 6% on a yearly basis to €140.3 billion and exports remained unchanged at €148.2 billion.
The data also showed that the region’s trade deficit with Russia almost halved to €5.4 billion and its deficit with China widened to €18.6 billion.
The better than forecast data allowed the Euro’s to gain for a second day against the weakened Pound Sterling (GBP).
RBA rate cut expectations weighing on ‘Aussie’
The Australian Dollar meanwhile declined against the Euro and other major peers as concerns over falling commodity prices combined with worries over the outcome of the upcoming US Federal Reserve policy meeting.
Sentiment towards commodity-based assets is declining as oil prices fell to a new six year low and as the value of metals such as gold, copper and silver fell sharply. Iron ore, which is a major ‘Aussie’ export, is also experiencing a sharp drop in price.
Also weighing heavily on the Australian Dollar are expectations that the Reserve Bank of Australia (RBA) will make further interest rate cuts at upcoming policy meetings.
‘The downside risks to growth are probably a little bigger than perhaps is commonly appreciated. I think we’ll have two further rate cuts this year, and if that’s wrong I think it could be three, not one,’ said Stephen Miller from BlackRock Australia.
The ‘Aussie’ is forecast to weaken further as the session progresses as market attention focuses on the Federal Reserve. Any signs that the US central bank is moving closer to raising interest rates will send the ‘Greenback’ climbing and send the Australian Dollar tumbling against its major peers.