Australian Dollar to Euro (AUD/EUR) Exchange Rate Forecast: ‘Aussie’ Downtrends as Chinese Manufacturing Contracts Further
In spite of some mixed Eurozone Manufacturing PMIs the Australian Dollar to Euro (AUD/EUR) exchange rate has been trending lower thanks to disappointing Chinese data.
Ahead of the weekend the Bank of Japan (BoJ) surprised markets by cutting interest rates into negative territory in its latest attempt to boost the strength of the domestic economy, a move that sparked a strong rally in global stocks and trader risk sentiment. As the fourth quarter Australian Producer Price Index showed an uptick on the year, from 1.7% to 1.9%, this saw the ‘Aussie’ (AUD) strengthen across the board on Friday.
Although the Euro (EUR) was later shored up by the revelation that the Eurozone’s Core Consumer Price Index had unexpectedly strengthened to 1.0% in January the single currency nevertheless struggled to hold onto its gains. While stronger domestic inflation would suggest that the European Central Bank (ECB) will opt to take a less dovish view of monetary policy at its March meeting traders continued to favour higher-yielding assets in the short term. Consequently the Australian Dollar to Euro (AUD/EUR) exchange rate returned to an uptrend to reach a three-week best of 0.6551.
Despite the latest Australian TD Securities Inflation report indicating that inflationary pressure rose to 2.3% in January the appeal of the antipodean currency was dented on Monday by a discouraging Chinese Manufacturing PMI. January saw the Chinese manufacturing sector contract for the sixth consecutive month, news that dispelled traders’ recent optimism with the reminder that the world’s second largest economy remains firmly in the grip of slowdown pressures. As investor demand for commodity-correlated currencies declined the AUD/EUR pairing began to cede back its recent gains.
While the fresh raft of Eurozone Manufacturing PMIs proved somewhat more mixed, with Spain and Italy posting multi-month highs as France and Germany slowed, the Euro has remained on largely stronger form. Some of this resilience is no doubt due to the common currency’s safe-haven status, particularly as the Yen (JPY) remains a less attractive offering for investors at this juncture.
Greater volatility should be expected for the ‘Aussie’ on Tuesday as the Reserve Bank of Australia (RBA) meets for its first policy decision of 2016. Pundits anticipate that the central bank will not opt to cut interest rates policymakers are expected to take a somewhat more dovish tone with regards to future monetary policy. If the meeting signals that the RBA will move to slash rates in the near future, in spite of some solid domestic data, the AUD/EUR exchange rate is likely to see a fresh slump.
At the time of writing, the Australian Dollar to Euro (AUD/EUR) exchange rate was slumped around 0.6499, while the Euro to Australian Dollar (EUR/AUD) pairing was making strong gains in the range of 1.5383.
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