The Euro Australian Dollar (EUR AUD) exchange rate plummeted over a cent overnight on Wednesday as markets become increasingly unsettled by the French elections.
After weeks of EUR investors preparing themselves for what seemed an inevitable run-off between far-right Eurosceptic, Marine Le Pen and independent centrist, Emmanuel Macron, another contender has unexpectedly stepped in to the ring at the eleventh hour.
Following a dramatic seven-point surge in recent polls, left-wing veteran Jean-Luc Mélenchon has positioned himself as a credible threat to the two main candidates, casting even more uncertainty over the whole election.
The left-wing firebrand has managed to strike a chord with many voters as he campaigns to reduce the working week from 35 to 32 hours and to lower the retirement age to 60. Mélenchon has also witnessed a surge in support amongst young voters thanks to his use of social media and a quirky online game.
Mélenchon is also a committed Eurosceptic, who much like Le Pen wishes to hold a referendum on France’s membership to the European Union, suggesting that anti-EU sentiment amongst the French electorate might be more widespread that initially thought, leading to the drop in EUR AUD.
While Macron remains the frontrunner, investors are keen not to repeat the mistakes of betting against the outsiders, following the upsets of both Brexit and Trump last year and are becoming increasingly cautious in the run up to the first round of voting later this month.
Some pollsters have even gone so far to suggest that May’s run off could even end up being between Le Pen and Mélenchon, an event that could lead to the second largest economy in Europe leaving the EU, a particularly worrying prospect for the Euro.
Meanwhile the Australian Dollar was strengthened overnight on Wednesday as Australia’s latest employment data impressed investors.
According to the Australian Bureau of Statistics (ABS) employment surged by 60,900 in March, easily outpacing initial forecasts that the Australia workforce would only rise by 20,000 and causing the total employment level to rise to record high of 12.06 million.
Markets were particularly pleased by the jump in number of workers gaining full time employment last month as it leapt from 38,700 to 74,500, with the Reserve Bank of Australia (RBA) previously noting that it was worried about the increasing number of workers being given part-time contracts.
However the rise in employment was not enough to cause the unemployment rate to fall from the one-year high of 5.9% struck in February following a lift in the participation rate, which climbed from 64.6% to 64.8%.
Looking ahead the EUR AUD exchange rate may stumble next week as economists forecast that the Eurozone’s latest inflation rate print will show that inflation plummeted from 2% to 1.5% in March following the collapse of fuel prices last month.
This will come as a disappointment to many investors, who had hoped that the European Central Bank (ECB) may have begun to make its move towards tightening its monetary policy if the inflation rate had held at the bank’s target rate of 2%.
Meanwhile the Australian Dollar may also tumble next week if the minutes from the RBA’s latest policy meeting suggests that the bank will strike an increasingly dovish tone in its future monetary policy.
Current Interbank Exchange Rates
At the time of writing the EUR AUD exchange rate was trending around 1.40 and the AUD EUR exchange rate was trending around 0.71.
