EUR/AUD Exchange Rate Sinks as Europe Undergoes Second Covid-19 Lockdowns
The Euro to Australian Dollar (EUR/AUD) exchange rate fell by -0.2% today, with the pairing currently fluctuating around AU$1.651.
The Euro (EUR) struggled against many of its peers as many European countries, including major economies like France and Germany, undergo national lockdowns to curb the spread of Covid-19.
As a result, EUR investors are becoming increasingly concerned for the Eurozone’s economy, which could face a ‘double-dip’ recession in the fourth-quarter.
Eurozone economic data has also failed to buoy the single currency. For instance, today saw the release of the Eurozone’s manufacturing PMI for October, which beat forecasts and rose to 54.8.
Chris Williamson, the Chief Business Economist at IHS Markit, summed up the mixed mood, saying:
‘Eurozone manufacturing boomed in October, with output and order books growing at rates rarely exceeded over the past two decades. However, while the data bode well for production during the fourth quarter, the expansion is worryingly uneven.’
Meanwhile, the Euro (EUR) is also suffering from its negative-correlation with the US Dollar, which has continued to benefit from safe-haven demand ahead of the US presidential elections tomorrow.
Australian Dollar (AUD) Rises as Australian Building Permits Soar
The Australian Dollar (AUD) edged higher against the Euro (EUR) today despite risk-off market mood ahead of tomorrow’s US presidential elections.
In Australian economic data, today saw the release of September’s Building Permits, which beat forecasts and soared from -1.6% to 15.4%.
Consequently, AUD investors are feeling more confident about Australia’s economic recovery.
Additionally, with China’s economic improvement over the past few weeks, AUD investors are now more hopeful that the world’s second largest economy could boost Australia’s exports.
However, we could see the ‘Aussie’s gains being short lived as China-Australian trade relations continue to show signs of souring.
John Meyer, an analyst at SP Angel, explains:
‘The development of a trade war with China is a major issue for Australia and may give China a template to work from as it flexes its economic muscle and dominant position in the resources industry.’
EUR/AUD Forecast: ‘Aussie’ to Plummet if RBA Cuts Interest Rates
The Australian Dollar (AUD) will remain sensitive to global risk-sentiment this week, owing largely to the US elections.
If Democrat candidate Joe Biden wins, however, we could see the risk-averse ‘Aussie’ gain.
Barclays analyst Nikolaos Sgouropoulos comments:
‘The U.S. election outcome is likely to be in focus next, with a delayed outcome or status quo weighing on the AUD while a “blue wave” could lead to rally, given the AUD’s correlation with equities.’
Meanwhile, AUD traders will be eyeing tomorrow’s Reserve Bank of Australia (RBA) interest rate decision.
If the RBA cuts its interest rate from 0.25% to 0.1%, then we would see the AUD/EUR exchange rate plummet.
The Euro (EUR) will remain sensitive to political developments in the US this week. If the ‘Greenback’ soars on heightened political uncertainty, then the Euro – which is negatively correlated to the US Dollar – would suffer.