The Australian Dollar to Euro (AUD/EUR) exchange rate recorded gains during Friday’s European session after advancing rather dramatically versus the Single Currency on Thursday.
The Euro tumbled against other currency majors during Thursday’s European trading after the Swiss National Bank (SNB) announced it was abandoning the 1.20 Euro to Swiss Franc (EUR/CHF) currency cap that’s been in place for the last three years.
The news shook markets and saw major losses for many major companies and businesses.
Furthermore, the move by the central bank offered investors a heads up that the European Central Bank (ECB) may be planning a massive move at its January 22nd meeting, such as introducing full-blown quantitative easing (QE).
SNB President Thomas Jordan has defended the secrecy surrounding the move, stating that it was of upmost importance.
Jordan stated: ‘The decision has been a surprise for markets—you can’t do it any other way. We came to the conclusion that it’s not a sustainable policy.’
The move was a complete surprise after months of the SNB stating that the central bank would defend the 1.20 cap with everything in its power.
Confidence in the SNB is now volatile, with many economists suggesting that the central bank has put its reputation at risk.
Swiss bank economist Sarasin Alessandro Bee stated: ‘This damages confidence in the Swiss National Bank that has always been saying it can keep up the minimum exchange rate. I see big risks in this.’
The Euro has softened against a basket of currency majors as a result of the development, and investors now eye the European Central Bank’s next meeting on January 22nd for news of additional monetary stimulus measures. If QE is implemented, the Euro exchange rate could soften further.
Industry expert Kevin Lilley commented: ‘QE in Europe is about lowering the Euro, which will import some inflation to offset deflationary pressures. That should mainly benefit European companies with significant exports—whether they are large or small.’
Some Trans Tasman businesses have gone bust after the SNB move, a factor that places a slight shadow over the Australian economy.
National Australian Bank head of research Nick Parsons stated: ‘I would be astonished if we did not see more causalities. This was a 180-degree about turn by the SNB. People feel hurt and betrayed.’
However, the SNB’s decision to slash its interest rate further into negative territory, from -0.25% to -0.75%, offered some good news for the ‘Aussie’ exchange rate.
Industry expert Kathy Lien stated: ‘When the Swiss National Bank brought interest rates into negative territory, investors were forced to look for alternative safe havens. This resulted in money pouring into Australia and New Zealand, two countries still offering an attractive yield.’
In addition, copper and gold prices also took an upswing which bolstered the ‘Aussie’.
In the week ahead, Tuesday could be a day of influence for the Australian Dollar to Euro (AUD/EUR) exchange rate with the release of Chinese ecostats. As China is Australia’s largest trading partner, any favourable figures from one of the world’s largest economies offers the Australian Dollar some support.
Tuesday will also see the release of ZEW’s German and Eurozone Economic Sentiment Survey’s for January.
The Australian Dollar to Euro (AUD/EUR) exchange rate is residing in the region of 0.7098. The Euro to Australian Dollar (EUR/AUD) exchange rate is trending at 1.4095.
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