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Volatility in EUR/AUD Exchange Rate Prompted by Dip in Eurozone Inflation

Dip in Eurozone Inflation Causes Fluctuation in EUR/AUD

The Euro Australian Dollar (EUR/AUD) exchange rate fluctuated in the last day of trade this week following the release of the Eurozone’s latest CPI figures.

At the time of writing EUR/AUD is almost flat after fluctuating in a range of around 0.2% through Friday’s session.

Euro (EUR) Rocked by Slide in Inflation

The Euro was met by volatility during the European trade session on Friday as the Eurozone, published its latest CPI data.

A flash reading released by Eurostat show that inflation tumbled from 1.5% to 1.4% last month edging inflation further away from the European Central Bank’s (ECB) target rate of 2%.

This appeared to be further evidence of the tight rope that the bank will need to walk to ensure that price pressure remains resilient while at the same time reigning its quantitative easing programme in 2018.

Further denting euro sentiment were the accompanying core inflation figures as they showed that even when stripping out volatile energy, food, alcohol and tobacco prices -the main source of weakness last month-, core inflation struggled to advance, instead holding at 0.9%.

However on the upside some analysts forecast that the strong growth in the Eurozone will lead to underlying inflation picking up over the coming months.

Gizem Kara at BNP Paribas said;

‘Although underlying inflation remains low by historical standards, we remain confident that core inflation will re-establish an upward trend in 2018 and end the year at about 1.6 per cent year over year. The rapid absorption of economic slack, higher wage growth, improved inflation expectations and favourable external factors all signal in that direction.’

Australian Dollar (AUD) Weakened by Shock Trade Deficit

Meanwhile the Australian Dollar initially slumped in early trade during the Asian session this morning as markets reacted to Australia’s latest Trade Balance figures.

According to data published by the Australian Bureau of Statistics (ABS) the domestic trade balance plummeted to –AU$0.6bn in November, some way off initial forecasts that it would rise to AU$0.5bn.

Further damaging AUD was the revision of October’s figures down from AU$0.1bn to -AU$0.3bn.

The figures came as a bit of a shock to analysts given that commodity prices were a little stronger in the last few months of 2017.

CommSec senior economist Ryan Felsman said;

‘Back-to-back trade deficits are surprising given decent increases in most of Australia’s commodity and services exports, and rising commodity prices amid a strengthening global economic backdrop.’

Analysts have warned that the two consecutive deficits could also weigh on growth, possibly leading to GDP slipping in fourth quarter.

EUR/AUD Forecast: Eurozone Retail Sales to Rebound in December?

Looking ahead to next week the EUR/AUD exchange rate may be pushed higher at the start of next week’s session as economists forecast that Monday’s retail sales figures will show that sales growth in the Eurozone rebounded from -1.1% to 1% last month.

Meanwhile the Australian Dollar may find some gains in the middle of next week as the latest domestic Business Confidence data is expect to report that sentiment strengthened at the end of 2017.