Last week’s below forecast inflation figures for the Eurozone increased the odds of the European Central Bank taking action to shore up the currency bloc’s timid economic recovery and pushed the Euro close to a two-month low against the US Dollar.
The common currency also lost ground against the ‘Aussie’ in spite of the publication of disappointing Australian and Chinese data.
With the Reserve Bank of Australia’s policy decision looming and economists expecting that the central bank will refrain from issuing a rate cut the ‘Aussie’ was supported against its major rivals.
In the opinion of one Sydney-based economist; ‘I’m sure as much as one can be that the RBA will not be reducing rates. I think the text will confirm the current cycle of easing is over and that could be a positive for the Aussie.’
The South Pacific asset consequently ended the local session stronger against a bearish Euro and was little-affected by the news that Australia’s AiG Performance of Manufacturing Index dipped from 47.6 in December to 46.7 in January – moving further away from the 50 mark separating growth from contraction.
Shortly after, China’s non-manufacturing PMI was released. Although the services gauge held above 50 it declined from 54.6 to 53.4
A separate Chinese manufacturing gauge came in at 50.5, a six-month low and further proof that the world’s second largest economy is struggling.
According to economist Ding Shuang, the data indicates that the deceleration of activity seen at the close of 2013 continued into the New Year and that ‘Growth may continue to slow in the next couple of quarters due to generally tighter credit conditions, amid government efforts to contain local government debt and regulate shadow banking.’
As European trading got underway the Euro experienced fluctuations following the release of PMI reports for Italy, France and Germany.
Although the Italian manufacturing sector expanded by less-than-expected in January, the pace of contraction in France eased by considerably more than predicted and the German manufacturing sector hit a 32 month high.
The Eurozone’s manufacturing PMI came in at 54.0 in January, up from 52.7 the previous month.
The upbeat reports could help the Euro recover losses over the next few hours.
However, we forecast that the Euro/Australian Dollar exchange rate will remain under pressure until the RBA delivers its rate decision at 03:30 GMT tomorrow.
The Eurozone producer price index is scheduled for release tomorrow but investors will also be looking ahead to Wednesday’s final services reports for the Eurozone and its largest economies.
Euro (EUR) Exchange Rates
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Currency, ,Currency,Rate ,
Euro,,New Zealand Dollar,1.6641,