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Rising Inflation Prompts Recovery in EUR AUD Exchange Rate

  • EUR AUD Buoyed by Inflation Figures – Rise in French and Spanish Inflation supports rise in overall Eurozone reading.
  • German Unemployment Falls – Euro Rises as jobless rate hits record low.
  • Australian Dollar Dips as Market Braces for Rough Patch – Morgan Stanley predicts ‘Aussie’ will run out of steaming in coming months.

The Euro Australian Dollar (EUR AUD) exchange rate rallied this morning, recovering yesterday’s losses as today’s inflation figures impressed investors.

Eurozone Inflation Strengthens Euro Australian Dollar (EUR AUD)

The Euro surged this morning following a jump in inflation across the bloc, which led to a jump from 1.1% to 1.8% in the overall Eurozone report for January, beating expectations that it would only reach 1.6% and closing in on a four-year high.

The rise was supported by the release of France’s and Spain’s latest inflation data, which rose from 0.8% to 1.6% and 1.4% to 3.0% respectively.

Investors are optimistic that the jump in inflation will put pressure on the European Central Bank (ECB) to start considering the tapering of its quantitative easing programme as Eurozone inflation closes in on the Bank’s target of 2.0%.

However ECB President, Mario Draghi has traditionally been quite dovish towards curtailing the central bank’s stimulus programme, with a recent announcement that the ECB would remain open to extending its bond buying programme past its current expiry date in December in case of further political instability.

EUR Rises as German Unemployment Reaches All-Time Low

The Euro was also bolstered this morning as German Unemployment fell for a fourth consecutive month to reach an all-time low in January.

Germany’s Federal Statistics Office reported that the unemployment rate fell from 6.0% to 5.9% in the first month of 2017 as jobless numbers dropped by 26,000, outpacing expectations that it would only reach 5,000.

Economists expect this trend to continue into 2017 as the German economy moves from strength to strength, while the core Eurozone nations also show strong signs of recovery.

Australian Dollar Weakened by Warning from Morgan Stanley

While the Australian Dollar has so far enjoyed a fairly decent start to 2017, making significant gains against the other majors particularly the US Dollar (USD), investors believe that the good times will soon come to an end.

‘Aussie’ sentiment dropped this morning as Morgan Stanley’s FX strategy team warned that AUD will soon face renewed pressure thanks to a resurgent ‘Greenback’, saying;

‘Recently, AUD has been supported not only by commodities and the hope for higher fiscal spending globally, but also from a weaker USD following verbal intervention from President Trump, we, however, are of the view that the USD cannot be held lower for long amidst improving data, expectations for fiscal spending and pricing in of Fed rate hikes.’

EUR AUD Exchange Rate Forecast: Spanish Unemployment Data Ahead

The EUR AUD exchange rate may struggle to extend its gains on Thursday following the release of Spain’s latest employment data, with forecasts that the number of unemployed will rise by 60.2k in January.

Meanwhile the Australian Dollar may also be hampered by tomorrow’s manufacturing index as economists predict that it will have fallen at the start of 2017.

Looking towards the end of the week the Euro may weaken further as Eurozone retail sales are expected to slide from 2.3% to 1.8% in December.

Current Interbank Exchange Rates

At the time of writing the EUR AUD exchange rate was trending around 1.41 and the AUD EUR exchange rate was trending around 0.70.