Last week the odds were fairly high that the European Central Bank would cut interest rates beyond record lows in March to bolster economic growth in the Eurozone.
However, better than forecast inflation figures and this week’s encouraging services, manufacturing, retail sales and growth reports have all led to investors paring bets of intervention being announced later today.
In the opinion of economist Anders Svendsen, the Eurozone’s current economic performance wouldn’t justify a further rate cut; ‘Activity numbers are actually picking up quite decently and the ECB is likely to revise up its GDP forecast at least for this year. Yes, inflation is low and will remain low for a long time, but this is not new to the ECB, and inflation is probably very close to bottoming out.’
While the Euro trimmed recent declines yesterday, its bearish relationship with the Australian Dollar continued as the ‘Aussie’ surged in response to further upbeat domestic reports.
Data revealed that Australia’s trade surplus widened to a 2 ½ year best while the nation’s retail sales leapt by 1.2 per cent in January, month-on-month.
Economists expected a sales gain of 0.4 per cent.
The upbeat data inspired this response from one locally-based currency expert; ‘Low interest rates are beginning to have an impact; we can see that in the building approvals data which are pushing record highs now and retail activity has also picked up. The improving global economy is, of course, always supportive of the Australian Dollar so you can include that in the basket of reasons for why the Aussie has got some tactical upside momentum.’
Although the Reserve Bank of Australia attempted to talk the ‘Aussie’ down in the minutes of its latest policy meeting, this week’s positive data releases have made it increasingly unlikely that the RBA will stray from its policy of interest rate stability, a factor which is lending the Australian Dollar underlying support.
Today’s German factory orders figures could have an impact on the EUR/AUD pairing, but market movement will be dictated primarily by the ECB rate decision.
Before the weekend Australian data to be aware of includes the nation’s performance of construction index, which came in at 48.2 in January.
Euro (EUR) Exchange Rates
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Currency, ,Currency,Rate ,
Euro,,New Zealand Dollar,1.6275,