Australian Dollar Fluctuates against Euro After ECB Decision


Euros & Cents (EUR)

The Australian Dollar to Euro exchange rate plummeted on Tuesday and failed to recover on Wednesday as an increase in Reserve Bank of Australia (RBA) rate cut bets pushed the currency down. However, Thursday news that the Brexit was unlikely to have an effect on Australia’s economy bolstered ‘Aussie’ support, allowing it to recover.

Australian Dollar (AUD) Begins Recovery Amid Hopes of Little Brexit Damage

The ‘Aussie’ Dollar plummeted across the board earlier this week, even struggling to maintain its height against the mixed Euro.

The Reserve Bank of Australia (RBA) indicated that an August rate cut was still possible depending on Australian inflation and the value of the Australian Dollar.

This sent AUD/EUR plunging to a two-week-low of 0.6770 on Tuesday. The pair briefly recovered to levels above 0.68, but at the time of writing had fallen to around 0.6785 following the ECB meeting.

Bets that the RBA could cut the key Australian interest rate in its August meeting remained relatively high. However, the ‘Aussie’ enjoyed a surge of appeal on Thursday after a report from Australia’s Council of Financial Regulators suggested that the market’s Brexit panic was unlikely to hit the Australian economy. According to Sputnik;

‘Australia’s economy is unlikely to be negatively affected by the United Kingdom’s exit, as bilateral trade ties are weak and the links between the two nations’ banking systems have also decreased in recent years, according to the report.’

As a result of the news, the ‘Aussie’ began to recover across the board. However, the currency remained pressured and was only able to recover around half of its losses against the Euro.

Euro (EUR) Sturdies after European Central Bank Decision

The Euro floundered and fluctuated on Wednesday and Thursday as investors reassessed their positions on the currency ahead of the European Central Bank’s (ECB) July policy decision meeting.

Markets were in agreement before the meeting that the ECB was unlikely to cut any rates or introduce new stimulus measures. Some also anticipated that the bank would focus on the potential effects of the Brexit.

However, investors were cooled and possibly a little disappointed following the meeting in Thursday’s European session. The ECB left key policies frozen, just as the Bank of England (BoE) had done last week.

The central bank also commented very little on the UK’s EU Referendum and Brexit result. However, the Euro was boosted by comments from ECB President Mario Draghi that the Eurozone’s financial markets had thus far remained resilient despite the Brexit. The ECB tweeted;

‘Draghi: Financial markets have remained resilient despite Brexit, also thanks to ample liquidity

We have shown in the past not only our readiness and willingness to act but also to adapt’

Draghi indicated, however, that the Brexit had introduced a new downside risk that could damage the Eurozone’s growth by 0.3-0.5% over the next three years.

Australian Dollar to Euro (AUD/EUR) Exchange Rate Forecast: Preliminary Eurozone PMI Ahead

Following the European Central Bank’s (ECB) relatively uneventful July meeting, Eurozone markets were quickly back to business as usual with the Euro unlikely to see significant movement in relation to the meeting from Friday onwards.

Instead, investors are likely to look forward to Friday’s European session which sees the release of Markit’s preliminary July PMI for the Eurozone.

As these are the first Eurozone work sector figures to be published covering the period since the Brexit vote, economists will pay close attention to if the figures indicate any unexpected shifts that may have occurred since the Referendum result.

All figures are expected to have dropped as a result of the uncertainty across Europe in July, but worse-than-expected figures could cause the Euro to plummet. These will be followed later by Q1 government debt and deficit figures for the Eurozone.

The Australian Dollar, on the other hand, is unlikely to see much inspired movement on Friday. However, there is potential for the ‘Aussie’ to rebound from its lows if investors continue to react positively to news that the Brexit was unlikely to affect Australia’s economy.

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