The Australian Dollar to Euro (AUD/EUR) exchange rate declined during Friday’s European session despite the European Central Bank (ECB) rocking markets on Thursday by announcing quantitative easing (QE).
The ‘Aussie’ also fell below 80 US cents against the US Dollar (AUD/USD) to its lowest level in five and a half years, after the ECB stimulus injection was revealed.
Economists and investors alike have forecast the Reserve Bank of Australia (RBA) may cut interest rates after the Bank of Canada (BOC) slashed its benchmark rate which has been dormant at 1.0% for the past four years.
Westpac have been adamant that the RBA would need to cut rates in its February meeting to help the Australian economy grow, amid concerns of a recession. The RBA declined that any conversations had taken place to reduce borrowing costs. Therefore, the ECB’s decision was the straw that broke the camel’s back for the Australian Dollar exchange rate.
Westpac currency strategist Sean Callow stated: ‘In the absence of any (Reserve Bank of Australia) guidance, the markets are looking offshore for direction. What they are seeing is looser policy from Canada, Europe, the Bank of England switching from two (policy makers calling) for a hike to nobody (calling) for a hike, and super-low inflation in New Zealand causing the market to think about a rate cut less than a year after they completed 100 points of hikes.’
‘In that environment, people are asking: why should the RBA hold steady?’
However, not everyone believes that the ECB’s latest dabble in QE will be that fruitful for the economy. With asset backed purchases beginning in March and continuing until September 2016, the programme will total over €1 trillion.
Investor billionaire George Soros commented: ‘My main concern that it will make a divergence between rich and poor bigger than it already is. It will benefit the owners of assets and actually wages will remain under pressure through competition and unemployment.’
Next week could be influential for the Australian Dollar to Euro (AUD/EUR) exchange rate with the release of Australian Consumer Price Index on Wednesday. In the third quarter on the year, the ecostat resided at 2.3%.
Thursday and Friday will be of high influence for the Euro with the release of German and Eurozone Unemployment Rate, Unemployment Change and Consumer Price Indexes.
The Australian Dollar to Euro (AUD/EUR) exchange rate is trending in the region of 0.7054.
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