- Greek bailout returns to limelight – Euro weakens as austerity measures set for weekend vote
- Weak US manufacturing boosted ‘Aussie’ – Odds of imminent Fed rate hike diminished to increase risk appetite
- RBA meeting minutes provoked volatility – Australian Dollar shored up as bets of June rate cut declined
- Australian Unemployment Rate forecast to rise – EUR/AUD exchange rate predicted to rally on weaker employment figures
Australian Wage Growth Slipped to Shore up EUR/AUD Exchange Rate
The appeal of the Australian Dollar (AUD) was dented on Wednesday morning due to an unexpected dip in the first quarter Wage Cost Index. This weaker showing does not seem to bode well for the upcoming Australian employment data, which could increase the chances of the Reserve Bank of Australia (RBA) opting to cut rates again sooner rather than later. Consequently the Euro to Australian Dollar (EUR/AUD) exchange rate trended higher in the region of 1.5493.
Earlier…
Euro Softer on Fraught Progress towards Greek Bailout Resolution
As the deadline draws nearer for the potential signing off of the current Greek bailout review, concerns over the outlook of the Hellenic nation’s economy have returned to weigh on the Euro (EUR). With the latest ‘omnibus’ bill of austerity measures set for a weekend vote in the Greek parliament, markets are nervous that Prime Minister Alexis Tsipras’ narrow majority of three might not be enough to secure passage. Should the measures be defeated then the Eurogroup will not sign off on the next tranche of bailout funds at its meeting on 24th May, opening the way for a fresh crisis as Greece risks default on payments to creditors over the summer.
While weaker Chinese Retail Sales and Industrial Production had weighed on risk appetite over the weekend, this trend was reversed by a particularly disappointing US manufacturing survey. As the US manufacturing sector showed fresh signs of slowing, the appeal of the Australian Dollar (AUD) was sharply boosted, with bets of a June Fed rate hike diminishing.
RBA Minutes Spurred EUR/AUD Exchange Rate Slump
Confidence in the ‘Aussie’ strengthened substantially on Tuesday morning in response to the May meeting minutes of the Reserve Bank of Australia (RBA). Policymakers were revealed to have been rather more hesitant to cut interest rates than markets had previously assumed, cutting the odds of a second rate cut in June. As researchers at TDS noted:
‘The Bank’s decision to cut rates was based on broad based weakening of inflation pressures, which could not be explained by temporary factors and given CPI data is subject to less measurement error, it appears this gave them the confidence to go rather than wait. Otherwise, with little change in the Bank’s other forecasts to growth/unemployment, it does support the RBA waiting for Q2 CPI on 27 July before they consider cutting again at the August meeting (TD and consensus for an August cut).’
Consequently, the Euro to Australian Dollar (EUR/AUD) exchange rate slumped sharply, as the lower likelihood of imminent RBA action bolstered the appeal of the antipodean currency.
Meanwhile, demand for the single currency dipped following comments from European Central Bank (ECB) chief economist Peter Praet. As Praet highlighted the potential for a ‘severe profitability shock’ within the European banking sector, investors were inclined to move away from the more vulnerable Euro. With the International Monetary Fund (IMF) also calling for Greece to receive debt relief until 2040, in return for its continued support of the bailout, the outlook of the Eurozone economy looked decidedly shakier.
EUR/AUD Exchange Rate Forecast: Higher Australian Unemployment Could Reverse ‘Aussie’ Uptrend
Thursday’s Australian employment data could see the ‘Aussie’ return to a bearish trend, with expectations pointing towards an uptick in the domestic Unemployment Rate. Should the level of unemployment rise from 5.7% to 5.8% this could encourage a renewed dip in confidence in the Australian economy, particularly if US data proves more positive over the coming days.
The finalised April CPI for the Eurozone is not expected to see any change on the year at -0.2%. Nevertheless, any increased signs of negative inflationary pressure within the currency union could increase bets that the ECB will engage in further monetary loosening. Developments in the Greek bailout situation are also likely to have a greater impact on the Euro ahead of next week’s Eurogroup meeting.
Current EUR, AUD Exchange Rates
At the time of writing, the Euro to Australian Dollar (EUR/AUD) exchange rate was slumped in the region of 1.5461, while the Australian Dollar to Euro (AUD/EUR) pairing was trending higher around 0.6486.