The Australian Dollar to Euro (AUD/EUR) exchange rate dived by around -0.87% on Thursday.
This is as a result of the European Central Bank (ECB) stopping short of resorting to expansive measures this year. The ‘Aussie’ (AUD), meanwhile, has softened as a result of bearish commodities and the hangover from disappointing third-quarter growth.
The Australian Dollar to Euro exchange rate is currently trending in the region of 0.6761.
With the commodity market trending lower as a result of low crude prices, the Australian Dollar has softened against nearly all of its major peers. Coupled with a cooler-than-anticipated economic growth in the third-quarter, the Australian Dollar’s bearish run isn’t showing signs of alleviating.
Compounding the ‘Aussie’ declination is yet more talk from Reserve Bank of Australia (RBA) officials about overvaluation having a damaging effect on economic growth. RBA Governor Glenn Stevens kept rates on hold for a 16th month on Dec. 2, saying in a statement that ‘the Australian Dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices.’
‘The ‘Aussie’ is overvalued relative to where everything is priced currently, importantly commodities and yield spreads,’ stated Paul Lambert, head of currencies in London at Insight, a Bank of New York Mellon Corp. unit. ‘We expect the spread between US and Australian government bonds to narrow.’
The Australian Dollar to Euro exchange rate has tumbled to a low today of 0.6754.
The shared currency has strengthened on Thursday after the ECB opted to keep interest rates on hold, delaying economic stimulation until next quarter. The ECB could alter ‘early next year the size, pace and composition of our measures,’ President Mario Draghi said today.
‘The risks surrounding the economic outlook for the Euro area are on the downside,’ Draghi told reporters. ‘Early next year the Governing Council will reassess the monetary stimulus achieved, the expansion of the balance sheet and the outlook for price developments,’ he added.
Compounding the common currency appreciation was a positive set of economic data publications. The German Construction PMI increased from 51.5 to 53.5. Eurozone Retail Sales ticked higher from 47.0 to 48.9, and German Retail Sales advanced from 50.2 to 52.8.
Oliver Kolodseike, economist at Markit, said; ‘Germany’s retail PMI rose to a five-month high in November, as promotional offers and advertising campaigns boosted sales. While gross profits continued to decline, there are signs that this may change in coming months, as wholesale price inflation fell to its lowest level in over four-and-a-half years amid reports of lower prices for foodstuff.’
Given that the common currency has appreciated significantly since the ECB rate decision, the possibility for attractive selling positions has increased dramatically. It is very possible, therefore, that the Euro will soften as traders lock in profits.
The Australian Dollar to Euro exchange rate has reached a high today of 0.6841.
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