Euro to Australian Dollar Exchange Rate Recovers amid Weakness in Euro Rivals
Despite lingering uncertainties about how the EU may respond to Italy’s controversial budget plans, the Euro to Australian Dollar (EUR/AUD) exchange rate saw a notable rise in demand yesterday amid fresh market risk-aversion.
After spending most of last week tumbling and falling from the level of 1.5685 to 1.5570, EUR/AUD recovered sharply on Monday night.
This morning, EUR/AUD touched on a 2-week-high of 1.5743 before trending closer to the level of 1.5708.
The Euro (EUR) was able to more easily regain its losses thanks to weakness in Euro rivals like the US Dollar (USD), but much of EUR/AUD’s early week gains were due to Australian Dollar (AUD) weakness.
Investors sold the risky trade-correlated currency as the Reserve Bank of Australia (RBA) expressed caution over global trade, and as US-China trade jitters appeared to worsen again.
Euro (EUR) Exchange Rates Climb on Rival Weakness Despite Italian Budget Fears
There has been little reason for investors to buy the Euro in recent sessions, but the shared currency has climbed versus major rivals like the Australian Dollar regardless thanks to outside factors.
Investors preferred the Euro to the ‘Aussie’ as markets became more risk-averse over the weekend.
On top of this, investors sold the US Dollar (USD) on signs that the Federal Reserve may be preparing to slow the pace of its US interest rate hikes. This caused speculation that the Fed was nearing the end of its tightening cycle.
As the US Dollar and Euro often see a negative correlation, investors bought the Euro as the US Dollar slipped.
However, the Euro was unable to capitalise on weakness in its rivals due to the lasting uncertainty surrounding Italy’s budget.
Italy’s anti-establishment government has maintained that it will not change its plans but hopes to avoid EU sanctions and instead reach an agreement. According to Italian Economy Minister Giovanni Tria:
‘The discussion goes on. Obviously the plan of the government doesn’t change, but there’s the intention to carry on the discussion.’
Australian Dollar (AUD) Slumps on Renewed US-China Trade Jitters
Despite general optimism regarding Australia’s economy from the Reserve Bank of Australia’s (RBA) latest meeting minutes results, concerns about trade tensions between the US and China have returned to headlines in recent sessions.
Not only did the RBA warn that the US-China trade war could be a major threat to global growth, the two nations showed little signs of softening their positions in recent sessions.
Over the weekend, an APEC meeting in Papua New Guinea saw the US and China failing to agree on a joint statement.
US Vice President Mike Pence also said that there would be no end to the controversial US tariffs on Chinese goods until China did more to change.
According to Ray Attrill, NAB’s head of FX strategy:
‘The comments from Trump were seen as offering a glimmer of hope that further tariff action could be held in abeyance,
The exchange of barbs between Pence and Chinese President Xi Jinping in PNG on the weekend continues to suggest this is unlikely.’
Euro to Australian Dollar (EUR/AUD) Exchange Rate Investors Anticipate Politics and Trade News
With US-China trade jitters in focus again and a lack of major data due for publication until later in the week, the Euro to Australian Dollar (EUR/AUD) exchange rate is more likely to react to political developments in the coming sessions.
If the US and China remain antagonistic towards one another rather than there being any signs of new trade talks, the Australian Dollar may remain weak.
On the other hand though, if the EU discusses how it will handle the issue of Italy’s budget plans this would prove highly influential for the Euro.
The Euro may slump and shed many of this week’s gains if the EU announces that it will take disciplinary measures against Italy’s government. This would worsen the perceived chances of Euroscepticism rising in Italy.
Eurozone data set to be published towards the end of the week, including Eurozone consumer confidence and the bloc’s November PMI projections from Markit, may influence the Euro to Australian Dollar (EUR/AUD) exchange rate later in the week.