Australian Dollar to Euro (AUD/EUR) Exchange Rate Forecast to Rally as RBA Avoids Rate Cut

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Twenty Australian Dollars (AUD)

The Australian Dollar to Euro (AUD/EUR) exchange rate advanced by around 1.47% during Tuesday’s European session.

After the Reserve Bank of Australia (RBA) stunned markets by avoiding a much anticipated benchmark rate cut, the ‘Aussie’ (AUD) advanced versus all of its most traded currency rivals. Slightly better-than-expected seasonally adjusted retail sales also aided the Australian Dollar uptrend.

The Euro, conversely, dived versus the majority of its most traded peers as the threat of a Greek exit from the Eurozone is weighing on demand for the single currency. With expectations that Athens will default on its payment to the International Monetary Fund (IMF) on Thursday, many expect Greece to turn elsewhere for financial aid.

The Australian Dollar to Euro (AUD/EUR) exchange rate is currently trending in the region of 0.7040.

Australian Dollar (AUD) Exchange Rate Rallies on RBA

Given that most analysts expected the Reserve bank of Australia to cut rates on Tuesday, the fact that they avoided doing so saw increased demand for the Oceanic currency. This could potentially be a fatal move for the RBA who have been voicing concern regarding over-valuation for some time.

‘By deciding not to cut interest rates today from the current level of 2.25 percent, the Reserve Bank of Australia missed an opportunity to achieve the further weakening in the Australian dollar that it so badly crave,’ according to a research note from Paul Dales, chief Australia & NZ economist at Capital Economics.

‘It perplexes me a little bit. I know people talk about waiting for the CPI numbers in late April. That’s the exact reason why it’s perplexing for me. Iron ore is still under stress, coal is a forgotten commodity, it’s still under stress. All these things are dragging down our national income,’ Tony Farnham, economist & analyst at Patersons Securities, told CNBC.

The Australian Dollar to Euro (AUD/EUR) exchange rate has fallen to a low of 0.6927 today.

Euro (EUR) Exchange Rate Softens on Potential Grexit

Given that Athens is very likely to default on its loan repayment to the IMF, fears of a Greek exit from the Eurozone are once again at the forefront of investor focus. The mounting tension and frayed relationship between Greece and Germany is compounding those anxieties. However, the IMF has stated that they are willing to be flexible when considering the latest reform proposal submitted by Athens.

‘(IMF Chief Christine) Lagarde … stressed that, in Greece’s case, the Fund is willing to show utmost flexibility in the way in which the government’s reforms and fiscal proposals will be evaluated,’ a ministry statement said.

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

Although the RBA will be desperate to see the ‘Aussie’ fall, the shared currency is unlikely to sustain any significant gains until there has been a significant development with regards to the situation in Greece. Therefore, the Australian Dollar to Euro (AUD/EUR) exchange rate is likely to hold gains for a considerable time to come.

The Australian Dollar to Euro (AUD/EUR) exchange rate climbed to a high of 0.7077 today.

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