Australian Dollar to Euro (AUD/EUR) Exchange Rate Forecast: Eurozone Inflation Falls, RBA Rate Cuts Ahead?

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Euros (EUR)

The Australian Dollar to Euro (AUD/EUR) exchange rate began Friday’s session lower despite a mixed bag of Eurozone data as Reserve Bank of Australia (RBA) rate cut expectations shrouded the ‘Aussie’.

The Eurozone Core Consumer Price Index (CPI) took a surprise fall to 0.5%. Economists had forecast stagnation at 0.7%. The non-core measure registered a further tumble into deflationary waters, moving to -0.6% from -0.2%. A smaller decline to -0.5% had been expected.

However, one silver lining for the Eurozone is the labour sector. Friday’s Eurozone ecostats highlighted a fall in the region’s Unemployment Rate from 11.5% to 11.4%. The drop in unemployment comes just a day after German joblessness fell from 6.6% to 6.5%.

Currency analyst Dean Popplewell commented: ‘A strong German labour market combined with lower energy prices is providing the consumer the confidence and will to spend.’

However, while the European Central Bank (ECB) prepares for quantitative easing in March, the RBA has its own problems to contend with.

Speculation that the official cash rate (OCR) will be cut in next week’s meeting has heightened and economists are presenting conflicting views.

This week saw Australian inflation fall; while some economists saw this as supportive of a rate cut, others suggested low consumer prices (paired with a softer ‘Aussie’) could keep rate cuts at bay.

Westpac is adamant that a February rate cut is on the cards, while other banks are not so sure. Bank of America Merril Lynch chief economist Saul Eslake has suggested that the RBA will keep the benchmark rate stable at 2.50%.

Eslake commented: ‘Being in the minority does make me question my own views. But I think there is clearer evidence than there was late last year that the extended period of record low interest rates is having the sort of effect that the Reserve Bank wants to see.’

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

The Australian Dollar to Euro (AUD/EUR) exchange rate is likely to fluctuate dramatically on Tuesday with the release of the RBA’s interest rate decision. If a rate cut does occur, the ‘Aussie’ could plummet.

Meanwhile, Thursday could be an interesting day for Euro trading with the release of German Factory Orders and Markit’s Construction Purchasing Managers Index (PMI). In addition, the European Central Bank (ECB) will publish its monthly bulletin, which could impact Euro trading.

The Australian Dollar to Euro (AUD/EUR) exchange rate is trending in the region of 0.6823.

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