At the beginning of the week German business confidence data surprised to the upside, indicating that investor sentiment in the Eurozone is improving at a faster-than-forecast pace.
Today a measure of consumer confidence for Germany also showed unexpected improvement.
The nation’s consumer confidence index advanced from a positively revised 8.3 to 8.5 in March rather than falling to 8.2 as expected.
In the hours immediately following the data release the Euro consolidated gains against the Australian Dollar.
Overnight the EUR/AUD pairing advanced as the price of iron-ore (Australia’s most important export) fell to a seven-month low.
The ‘Aussie’ was broadly weaker as iron ore prices for Chinese imports dipped to 119.10 Dollars in a fifth day of declines.
The Australian Dollar’s bearish relationship with several of its major rivals prompted this response from market strategist Chris Weston; ‘There are a number of factors working against the Australian Dollar. If we see a lower iron price, going through to the 110 Dollar level, I think the Reserve Bank of Australia has the premise further down the line to re-establish its easing bias.’
At the RBA’s most recent policy meeting the central bank adopted a more hawkish stance and refrained from hinting at the prospect of an additional rate cut.
However, since then Australian data has been patchy at best and concerns regarding an economic slowdown in China (Australia’s main trading partner) have far from abated.
Emerging-market currencies have also experienced tumultuous trading as a result of political upheaval and the expectation that the Federal Reserve will continue with the steady tapering of stimulus.
During the local session the Australian Dollar was also adversely affected by a report showing a 1.0 per cent decline in Australian construction work in the fourth quarter following a gain of 3.0 per cent in the third quarter.
Economists had expected a quarterly increase of 0.2 per cent.
The Euro remains in a softer position against the Pound and US Dollar as investors speculate on the likelihood of the European Central Bank introducing additional stimulus when it meets next week.
A lack of further economic news from the Eurozone may limit EUR/AUD movement today, but tomorrow’s German employment figures and Eurozone confidence reports are sure to inspire volatility.
We forecast that the EUR/AUD exchange rate will hold gains until tomorrow.
Euro (EUR) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Euro,
,US Dollar,1.3736
Euro,,British Pound,0.8239,
Euro,,Australian Dollar,1.5240,
Euro,,New Zealand Dollar,1.6496,
Euro,,Canadian Dollar,1.5224,
[/table]
