The Euro Australian Dollar (EUR AUD) exchange rate tumbled by almost a cent today as market reacted to the results of the German election.
Euro (EUR) Tumbles as Merkel Weakened in General Election
The Euro has stumbled in trade today as investors were dismayed by Angela Merkel’s performance in Germany’s general election on Sunday.
Although she was able to retain her title as Chancellor her party and its coalition partners have taken a drumming in the election, with her conservative CDU/CSU bloc and her Social Democrats (SPD) allies both having lose voters to the far-right nationalist AfD party which won its first parliamentary seats over the weekend.
Not only has Merkel’s CDU party made significant losses, it also now faces the task of finding new partners to form a government with as the SPD has decided to break away from its ‘grand coalition’ to become a part of the opposition.
Analysts suggest that Merkel will now attempt to form a new ‘Jamaica’ coalition with the smaller liberal Free Democrats (FDP) and Green parties, although there are concerns how the FDP’s hostility towards French President Emmanuel Macron may impact the budding relationship that has formed between Merkel and Macron since his election earlier this year.
Australian Dollar (AUD) Weakened by Fall in Iron Ore
Meanwhile the Australian Dollar remains weakened at the start of this week due to the collapse of iron ore prices over the last couple of weeks.
Iron ore has now fallen 14.5% to $63.56 a tonne over the last two weeks as demand for Australia’s largest export sinks, while the ‘Aussie’ managed to avoid any significant losses last week, a quiet start to the trading session today has seen the Australian currency advance slowed today.
Analysts have also suggested that this downtrend in likely to continue for the foreseeable future as demand is likely tapered by curbs in steel production.
Vivek Dhar, mining and energy commodities analyst at the Commonwealth Bank said;
‘While [higher steel mill margins] are an important short-term price driver, it is only valid as long as China has spare steel capacity. That condition looks under threat come November 15.’
‘The detailed action plan outlined in August looks to reduce utilisation rates at blast furnaces to 50% in key steel producing cities of Tangshan, Handan, Tianjin, Anyang and Shijiazhuang. There are also 12 smaller steel producing cities expected to limit utilisation rates to 70%.’
EUR AUD Forecast: French Business Confidence to Slide?
Looking ahead the EUR AUD exchange rate may slump again on Tuesday if French Business Confidence slips in September as expected.
Meanwhile a further lull in Australian domestic data may leave the ‘Aussie’ a little directionless this week, possibly slowing its potential gains if commodity prices continue to tumble.
Current Interbank Exchange Rates
At the time of writing the EUR AUD exchange rate was trending around 1.4942 and the AUD EUR exchange rate was trending around 0.6691.
