As the threat of full-blown quantitative easing looms over the European Central Bank like an ominous black cloud, the common currency has been depressed and is trending lower against the majority of its currency rivals. Meanwhile, the Australian Dollar has firmed up versus many of its competitors after inflation data printed within the Reserve Bank of Australia’s target range.
The Euro to Australian Dollar exchange rate is currently trending in the region of 1.4445.
The single currency dropped more than half a cent against the US Dollar on Tuesday after several sources familiar with the European Central Bank situation threatened the possibility of the purchase of corporate bonds on the secondary market. ‘The pressure in this direction is high,’ said one person familiar with the work inside the ECB, speaking on condition of anonymity.
This was countered by an ECB spokesman, however, who stated; ‘The Governing Council has taken no such decision.’
Following a positive result from Chinese industrial production, the ‘Aussie’ (AUD) managed to rack up gains versus many of its major peers. The positive Chinese data also eased concerns over the slow pace of the global economic recovery which, in turn, spurred traders to invest in higher-yielding assets.
Risk sentiment has also improved dramatically after geopolitical issues took a step back in trader focus. As the world’s larger economies are finally taking the Ebola threat seriously, it looks likely that the virus will be contained before a global epidemic occurs.
The Euro to Australian Dollar exchange rate has dropped to a daily low of 1.4442.
On Wednesday the Euro has continued to slump against the majority of its most traded currency competitors ahead of the purchasing managers index data on Thursday. ‘The risks to the PMIs is for more disappointment and I can see the Euro heading back down again,’ said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. ‘The Euro may find support around the $1.26 level.’
Should the PMIs contract beyond expectations it will add pressure to the European Central Bank to employ additional stimulus.
On Wednesday the Australian Dollar rallied against many of its major peers after inflation data printed within the parameters of the target set by the RBA. The Consumer Price Index declined from 3.0% to 2.3%; meeting with the median market forecast. The quarter-on-quarter CPI managed to eclipse the market consensus of a drop from 0.5% to 0.4%, with the actual result equalling the previous figure.
Euro to Australian Dollar Forecast to Soften
Given that all of the European PMIs are expected to decline from previous figures, it is very unlikely that the common currency will be able to curb a huge downtrend. This is especially true if the results spark corporate bond purchases.
Australian business confidence data has the potential to spark volatility for the antipodean asset. Perhaps more significant, in terms of ‘Aussie’ volatility, will be the Chinese Manufacturing PMI which is forecast to hold in line with the previous figure of 50.2.