Australian Dollar to Euro (AUD/EUR) Exchange Rate Forecast to Decline on ‘Aussie’ Overvaluation

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Euros (EUR)

In the wake of a decision by the Reserve Bank of Australia (RBA) to keep the benchmark interest rate unchanged, the Australian Dollar to Euro (AUD/EUR) exchange rate softened by around -0.15%.

The common currency, meanwhile, has softened against many of its major peers amid increasing concern regarding Eurozone deflation.

The Australian Dollar to Euro exchange rate is currently trending in the region of 0.6789.

Australian Dollar Exchange Rate Softer on RBA

After the RBA opted to keep the cash rate on hold, the Australian Dollar softened. Whilst a period of stability would usually be positively received, the dovish language used by officials has offset gains.

‘The most prudent course is likely to be a period of stability in interest rates,’ RBA Governor Glenn Stevens said, repeating comments from last month on rates and the currency. ‘The Australian Dollar remains above most estimates of its fundamental value’ and ‘a lower exchange rate is likely to be needed to achieve balanced growth in the economy,’ he added.

Some economists are calling for a rate cut in order to improve wage growth and alleviate concerns over falling commodity prices. Rate cuts would put more income in the hands of consumers ‘who are currently seeing zero real wages growth and suffering fiscal drag,’ Deutsche Bank’s Chief Economist Adam Boyton said. ‘It should also prolong an increase in housing construction activity.’ A cut when the Federal Reserve may raise rates would help the Australian dollar ‘catch up to the declines in commodity prices,’ he said.

A larger ‘Aussie’ declination has been avoided as a result of better-than-expected Australian economic data. Building Approvals appreciated on both a yearly and a monthly level and the Current Account Balance increased significantly.

The Australian Dollar to Euro exchange rate has dropped to a low today of 0.6783.

Euro Exchange Rate Fluctuates amid Deflation Anxieties

After European data printed relatively negatively on Tuesday, the single currency has fluctuated against its major peers. This can be attributed to traders suspecting that Monday’s large downtrend was unjustified, and therefore the disappointing data has had less of an impact. However, the inflation data does highlight the potential for sustained Eurozone deflation.

On a yearly basis, the Eurozone Producer Price Index met with the median market forecast of a slight rise from -1.4% to -1.3%. However, on a month-on-month basis, October’s Producer Price Index cooled from 0.2% to -0.4%, despite expectations of a drop to -0.3%.

With the European Central Bank due to convene on Thursday to decide on monetary policy, the likelihood of expansive measures being introduced has now increased after inflation data disappointed. Cyril Regnat, fixed income strategist at French bank Natixis, stated; ‘It would be very, very surprising to have nothing on Thursday given the strong de-anchoring of inflation expectations.’

Australian Dollar to Euro (AUD/EUR) Exchange Rate Forecast to Strengthen

As we approach the ECB interest rate decision, speculation will mount that the central bank will have to resort to unconventional methods in order to shore up the flagging Eurozone economy. Therefore, it is likely that the Australian Dollar to Euro exchange rate will advance.

The Australian Dollar to Euro (AUD/EUR) exchange rate has reached a high today of 0.6852.

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