The Euro Australian Dollar (EUR AUD) exchange rate plummeted this morning at the RBA signalled that it was in no rush to raise interest rates.
Australian Dollar (AUD) Plummets as RBA Signals no Rate Hike is Imminent
Sentiment towards the Australian Dollar plummeted overnight on Monday as the Reserve Bank of Australia (RBA) met for its latest monetary policy meeting.
As had been wildly expected, the bank voted to leave interest rates unchanged in its July policy meeting as it continues to seek ‘sustainable growth in the economy and achieving the inflation target over time’.
However following hawkish comments from other central banks last week with both the Bank of England (BoE) and Bank of Canada (BoC) hinting towards a possible rate hike in the near future, all eyes were on the RBA to see if it would follow in this trend.
Investors were left disappointed however as the Bank made it clear it would be retaining its neutral bias, indicating that this was likely to remain in place for the foreseeable future.
Sally Auld, Chief Economist at J.P. Morgan said;
‘In summary, we read today’s Statement as a clear indication that the RBA has explicitly chosen not to adopt a more hawkish tone to its rhetoric. Ultimately, a more hawkish central bank requires the distribution of risks around both growth and inflation to have improved, such that the current setting of financial conditions is no longer appropriate. Our sense is that this is not yet the case in Australia.’
The RBA’s dovish tone was also reflected in its outlook for Australia’s labour market, which has been a source of much concern for the Bank in recent months, with it suggesting that while the employment has improved ‘indicators remain mixed’.
Impressive Eurozone Data Continues to Bolster Confidence in Euro (EUR)
The Euro continued to strengthen this morning as investors remain upbeat towards the single currency following a string of impressive data coming from the Eurozone in 2017.
With the bloc’s latest manufacturing PMI climbing to a new six year high it suggests that the Eurozone is set for another period of bumper growth in the second quarter.
However its remains to be seen if this recovery can extend itself over the next six months to the end of the year, with fears over the situation in Greece and the possible default on a debt repayment by the beleaguered nation still hanging over the single currency.
EUR AUD Forecast: Praet Speech to Reaffirm ECB Commitment to Stimulus?
Looking ahead the EUR AUD exchange rate is likely to retreat later this afternoon following a speech by European Central Bank (ECB) policymaker Peter Praet.
With the Bank being forced to clarity that a speech by ECB President, Mario Draghi wasn’t an indication that it was planning to tighten its monetary policy last week expectations are high that Praet will project a clearly dovish outlook towards the bank’s future monetary policy.
Meanwhile the Australian Dollar may be weakened again overnight with the release of the domestic Services PMI, with economists forecasting that Australia’s services sector will have slowed for the second consecutive month.
Current Interbank Exchange Rates
At the time of writing the EUR AUD exchange rate was trending around 1.4931 and the AUD EUR exchange rate was trending around 0.6696.