The Australian Dollar to Euro (AUD/EUR) exchange rate declined during Tuesday’s European session as Reserve Bank of Australia (RBA) rate cuts seem more likely to occur in the early months of 2015.
The National Bank of Australia (NAB) replaced its forecasts for a rate hike with predictions for rate cuts after both Australian Business Conditions and Confidence fell in November.
Business Conditions fell from 13 to 5 while Business Confidence dipped from 5 to 1.
NAB follows Westpac in negatively revising forecasts as the Australian economy stalls.
NAB chief economist Alan Oster stated: ‘A softer commodities outlook and prospect of more severe deterioration in labour market mean we have changed our rate call to two cuts of 25 basis point cuts in March and August 2015, then on hold until late 2016.’
During 2014 the price of iron ore declined by almost 50%. Despite this, the Australian Dollar has remained high. The RBA has voiced its appreciation of a lower ‘Aussie’ exchange rate and is therefore unlikely to offer any support to the Oceanic currency as it falls on rate cut speculation.
The RBA has previously stated: ‘A lower exchange rate is likely to be needed to achieve balanced growth in the economy.’
Meanwhile, the Euro experienced a positive start to the European session when German Trade Balance figures surprised economists. September had recorded a higher than expected surplus of 22.1B and a dip to 18.9B had been expected. However, the actual figure remained rather buoyant at 21.9B.
Berenberg Bank economist Christian Schulz commented: ‘We expect German exports to continue to grow nicely throughout the rest of the year and in 2015 as German companies enjoy a strong competitive position, important developed export markets are growing nicely or rebounding and the weaker Euro helps a bit on global markets.’
Eurozone growth has been hindered by geopolitical tensions between Russia and Ukraine, and by extension, global economic health has also been hindered.
Schulz continued: ‘While still-fragile domestic (spending) might have been holding back import growth, the drop in oil price which began in October, is likely to have had the much bigger impact. Consumers and companies will increasingly benefit from sharply lower prices for oil imports since the end of September this year.’
The Australian Dollar to Euro (AUD/EUR) exchange rate is set for an interesting day on Thursday with both the Australian Employment Change and Unemployment Rate figures published. Furthermore, Australia’s Consumer Inflation Expectation will also be out and could cause ‘Aussie’ fluctuations.
The Euro could be affected by final German Consumer Price Index (CPI) stats if they fail to fall in line with forecasts.
A more influential event on Thursday will be the release of the European Central Bank’s (ECB) Monthly Report, which could make for interesting Euro trading.
The Australian Dollar to Euro (AUD/EUR) exchange rate is trending in the region of 0.6722. The Euro to Australian Dollar (EUR/AUD) exchange rate is residing at 1.4881.
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