RBA ‘Chills Out’ on Interest Rates to Shore up Australian Dollar (AUD) Demand
Overnight the Reserve Bank of Australia (RBA) left interest rates unchanged, although policymakers did indicate that there could remain scope for further monetary loosening in 2016 if needed. While not the most hawkish of outlooks this has nevertheless bolstered demand for the Australian Dollar (AUD), setting the EUR/AUD exchange rate on strong downtrend this morning.
Sentiment towards the Australian Dollar (AUD) has improved today as strong domestic data encouraged expectations that the Reserve Bank of Australia (RBA) would hold steady on interest rates at tomorrow’s policy meeting.
Risk Aversion Bolstered EUR/AUD Exchange Rate after Chinese Stock Market Plunge
Although the Australian Dollar (AUD) had been on relatively bullish form last week, the antipodean currency was weighed down on Friday by an increasing atmosphere of market risk aversion. The Shanghai Composite Index closed down 5.5%, having experienced a particularly bad day of trade after the announcement that a number of major Chinese brokerage firms are under investigation by the security regulator. With commodities already weaker on the back of strong US data and the increasing prospect of imminent Fed monetary tightening, this latest sign of turmoil within the Chinese markets naturally dragged on the ‘Aussie’, bolstering the Euro to Australian Dollar (EUR/AUD) exchange rate.
Safe-haven demand also acted to shore up the single currency (EUR) ahead of the weekend, outweighing the impact of contracting German Import Prices and a weaker-than-expected Greek GDP report.
Australian Dollar Currency News: AUD on Bullish Form Today after Private Sector Credit Increases
Monday morning, however, has seen the Australian Dollar rally on the back of some more optimistic domestic data. The latest Company Operating Profit and Private Sector Credit figures both showed unexpected improvement, adding support to the assessment that the Australian economy is shaking off negative global headwinds and firming. These more upbeat economic releases have also strengthened the impression that the Reserve Bank of Australia (RBA) will not vote to change interest rates at tomorrow’s final policy meeting of the year.
While commodity prices have continued to slide this week, the Euro has begun to soften somewhat against a number of rivals following some disappointing German Retail Sales. Consumer demand unexpectedly contracted on the month in October by -0.4%, suggesting that the Eurozone’s powerhouse economy could be experiencing a more severe slowdown than previously thought.
EUR/AUD Exchange Rate Forecast: Euro May Rally on Predicted Strengthening of German Inflation
Investors will be hoping to see a slight uptick on this afternoon’s German Consumer Price Index, with any indication of increasing inflationary pressure likely to boost the appeal of the Euro. Although the European Central Bank (ECB) is widely expected to expand its quantitative easing program at Thursday’s policy meeting, stronger inflation could prompt policymakers to opt for more moderate measures.
Tonight’s Australian Manufacturing PMI may help to drive demand for the antipodean currency, as any increase in the expansion of the domestic manufacturing sector will offer further reassurance of a more robust economy. A strong uptrend is expected for the ‘Aussie’ overnight regardless, with the EUR/AUD exchange rate to extend losses in the wake of a more hawkish RBA meeting.
Current EUR, AUD Exchange Rates
At time of writing, the Euro to Australian Dollar (EUR/AUD) exchange rate was slumped in the region of 1.4667, while the Australian Dollar to Euro (AUD/EUR) pairing was on a strong uptrend around 0.4798.