UPDATE
For the second day in a row, China’s equity market finished the session down. The Shanghai Composite Index declined 3.5% led by technology companies and commodity producers. This caused dampened demand for high-yielding assets, which saw the Australian Dollar soften versus many of its major peers. Additionally, minutes from the most recent Reserve Bank of Australia (RBA) interest rate decision meeting warned of downside risks with China’s economy slowing.
The Euro, meanwhile, edged lower versus many of its currency rivals in the early stages of Tuesday’s European session. This is partly due to traders expecting the forthcoming German ZEW Economic Sentiment survey to print poorly, but also as a result of speculation that Euro overvaluation will provoke the European Central Bank (ECB) into expanding monetary stimulus.
The Euro to Australian Dollar (EUR/AUD) exchange rate is currently trending in the region of 1.5877.
Yesterday…
Euro (EUR) Declines against the ‘Aussie’ (AUD) on Common Currency Overvaluation
The Euro to Australian Dollar (EUR/AUD) exchange rate softened by around -0.7% on Monday afternoon.
Despite the fact that European economic data produced positive results on Monday, the common currency declined versus most of its major peers. Eurozone Industrial Production came in at 1.9% on the year in July; bettering the market consensus of 0.7% output. On a monthly basis, Industrial Production grew by 0.6% in July; eclipsing the market projection of 0.3%. The Euro’s depreciation can be linked to fears that the shared currency is overvalued.
‘Looking ahead, the (industrial) sector looks likely to continue its listless trend,’ said Jack Allen, European economist at Capital Economics. ‘Unless it is soon reversed, the recent strength of the Euro suggests that the boost from the previous weakening of the exchange rate might fade sooner than we had previously anticipated.’
The Euro to Australian Dollar (EUR/AUD) exchange rate is currently trending in the region of 1.5837.
‘Aussie’ (AUD) Exchange Rate Advances against the Single Currency (EUR) on Fed Rate Hike Pessimism
Although Sunday’s economic data showed China’s economy was still struggling, the ‘Aussie’ strengthened versus many of its currency rivals on Monday. Even a slight drop in both Australia’s Credit Card Balances and Credit Card Purchases wasn’t enough to stimulate an Australian Dollar downtrend. The South Pacific asset’s appreciation is partly the result of pessimism regarding Thursday’s Federal Open Market Committee (FOMC) interest rate decision. The situation in China has caused many futures traders to speculate that the FOMC will chose to hold the cash rate, which has caused heightened demand for high-yielding assets.
In addition to Fed rate hike pessimism, the ‘Aussie’ gained in response to rising gold prices. Gold has risen around 0.3% above opening levels on Monday. The advance is also the result of mounting confidence that the FOMC will avoid hiking the benchmark interest rate amid uncertainties regarding the ramifications of China’s economic woes.
The Euro to Australian Dollar (EUR/AUD) exchange rate dropped to a low of 1.5783 during Monday’s European session.
Euro to Australian Dollar (EUR/AUD) Exchange Rate Forecast to Hold Losses ahead of RBA Minutes
Given the absence of further economic data publications pertaining to either Europe or Australia, the Euro to Australian Dollar (EUR/AUD) exchange rate is likely to hold losses for the remainder of Monday’s European session. With that being said, any changes in China could provoke volatility for the pairing.
Looking ahead to Tuesday there will be several influential data publications with the potential to provoke changes for the EUR/AUD exchange rate. Of particular significance will be the Reserve Bank of Australia (RBA) policy meeting minutes. In terms of European data, the German ZEW Economic Sentiment Survey has the greatest potential to cause Euro movement.
The Euro to Australian Dollar (EUR/AUD) exchange rate climbed to a high of 1.6066 during Monday’s European session.