With safe-haven demand abating somewhat in the post-Brexit world, the Australian Dollar Euro exchange rate has steadily increased over the week as investors become comfortable dealing with the ‘Aussie’ once more.
Immediately following the results pointing towards a UK departure from the EU, sky-high market uncertainty saw safe-haven demand surge and traders flocked to the US Dollar and Yen. Now that demand has subsided somewhat, the Australian Dollar is starting to enjoy some upward pressure, especially as the US Federal Reserve appears unlikely to consider any neat-term rate hikes.
Currently the Australian Dollar Euro Exchange Rate trades at 0.6723, appreciating almost 0.30% since the start of today’s session.
The ‘Aussie’ has enjoyed the upward pressure felt as the initial Brexit-based safe-haven demand lessened, seeing the Australian Dollar Euro exchange rate rally.
Demand for the US Dollar has subsided somewhat as the US Federal Reserve has made it fairly clear that is will be highly unlikely to see a rate hike any time this year. Some analysts predict a possible rate cut sometime in August and this is keeping demand for the ‘Buck’ nominal. As market sentiment shifted, the Australian Dollar has seen substantial rallies against most of its major pairings, with the New Zealand Dollar being a notable exception.
With risk-on sentiment on the rise and the ‘Aussie’ already viewed as overvalued by the Reserve Bank of Australia (RBA), there are murmurings of a possible RBA rate cut to keep the ‘Aussie’ in line. This is stifling AUD’s rally somewhat but has not mitigated all gains.
Recently, the European Union economy’s long-term credit rating was downgraded from AA+ to AA by the venerable Standard and Poor’s rating agency, however, S&P also raised its economic outlook for the region from negative to stable following the UK’s departure from the European Union.
The Euro has struggled with the intensity of the fallout from the UK’s EU referendum for a week now and has managed to recover almost half of the gains made just before the vote’s results were announced. The Euro currency index posted a significant loss on Friday the 24th of June, the day of the results, falling from above 1.14 points to around 1.1050 by the 27th.
The threat of an upcoming period of monetary policy loosening and stimulus measures has kept upward pressure on the Euro muted. Rumours that the European Central Bank is set to change its quantitive easing rules to allow the buying of riskier assets has also worried Euro investors as if the guidelines are too lax, there is no guarantee the banks will make their money back.
It will still be up to the UK to get its act together if it wants to see Eurozone and global market uncertainty relent, although it may be optimistic to look for a respite until the article 50 negotiations have come and gone.
ECB official Benoit Coeure is speaking on Sunday in France, and as with any EBC official talk, there is potential for market movement depending on the tone of the address and its contents. The EU and Eurozone are in dire need of some comforting actions as they struggle with post-Brexit turmoil.
A host of sector PMIs will be released for Europe over the next week, which may lead to a much needed bolstering of the common currency.
An Australian inflation indicator is set for release on Monday as well as a building approvals for May, both reports hold market influence but an increase in building permits could see the ‘Aussie’ gain some upward support.
On Tuesday, the Reserve Bank of Australia (RBA) will be announcing whether it shall be changing its benchmark rate and the majority of analysts expect a rate cut, if not, at least some eluding to that being the plan. The already overvalued ‘Aussie’ has been enjoying the recent safe-haven relief so the central bank may elect to pre-emptively cut rates.
To conclude, the Australian Dollar Euro exchange rate could be expected to slide next week now that the RBA appears likely to cut rates.
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