October’s raft of Eurozone manufacturing and services PMIs offered fresh encouragement to the Euro, illustrating the continued resilience of the domestic economy.
Even though some of the individual figures showed some slight slowing on the month this was not enough to diminish the generally positive picture.
As Bert Colijn, Senior Economist at ING, noted:
‘The weak headline for the October PMI should not worry the ECB too much as businesses indicate the fastest job growth since the survey started in 1997 and selling prices increased at the fastest pace since June 2011. While the drop in the composite PMI could point to a somewhat slower GDP growth in the last quarter of the year, it does seem that growth will remain healthy and that the economy could weather slower asset purchases by the ECB. With new orders increasing and export demand picking up, the underlying detail provided enough encouragement for another robust start to the quarter.’
This encouraged the Euro Australian Dollar exchange rate to extend its gains further during trade on Tuesday, especially as the general sense of market risk appetite remained muted.
The Australian Dollar was unable to capitalise on a solid improvement in the ANZ Roy Morgan weekly consumer confidence index, meanwhile, as a strong US Dollar continued to weigh on investor sentiment.
Higher Australian Inflation May Prompt RBA Hawkishness
A rallying point could be in store for the ‘Aussie’ on the back of the third quarter Australian consumer price index data, however.
If inflation strengthens from 1.9% to 2.0% on the year in line with forecasts this would put the measure back in the Reserve Bank of Australia’s (RBA) target range.
This would give RBA policymakers greater incentive to return to a monetary tightening bias in the coming months, increasing the appeal of the Australian Dollar.
However, even a stronger showing here is unlikely to alter the current mind-set of the RBA, which remains committed to a neutral policy outlook at this juncture.
Further pressure may also be in store for the EUR AUD exchange rate if the Catalan crisis shows further signs of escalation.
With the regional administration meeting on Thursday the risk of a unilateral declaration of independence remains, limiting the upside potential of the single currency.
If the region does attempt to break away in response to the Spanish government’s invocation of article 155 and imposition of direct rule this could significantly weaken the appeal of the Euro.
On the other hand, any signs that the two sides are starting to engage in a more constructive dialogue could give EUR exchange rates a fresh boost.
Current EUR AUD Interbank Exchange Rates
At the time of writing, the Euro Australian Dollar exchange rate was making solid gains around 1.5126. Meanwhile, the Australian Dollar Euro exchange rate was slumped in the region of 0.6608.
