The EUR v AUD exchange rate was trading flat around the 1.6130 level on Monday as traders paused to consider the outlook for the exchange rate. Despite rallying to trade at the 1.6600 level just over a week ago, Australian dollar strength resumed with a 2.8% gain in the Aussie dollar. The market now awaits two potentially market-moving events tomorrow.
Markets Await RBA Minutes and ZEW Report on Tuesday
The euro and Australian dollar exchange rate saw lower volatility on Monday as traders await the minutes from the Reserve Bank of Australia’s February policy meeting and the Eurozone’s ZEW Economic Sentiment Survey later on Tuesday morning.
The RBA minutes are unlikely to provide much fireworks after the bank held interest rates steady at 0.75% and Governor Philip Lowe has been vocal in the days following that decision as he sought to clarify the RBA’s policy response and the risks surrounding the recent bushfire crisis and the Chinese virus outbreak.
Dr Lowe also confirmed recently that the bank was not concerned about meeting their 2-3% inflation rate in a hurry and that rates would only fall further with higher unemployment or a worsening of the economy, but these scenarios are not going to play out in the short-term.
The Eurozone’s ZEW Survey of business sentiment is a high importance event for the euro and it will likely take on more weight in coming months to gauge the mood of businesses after Brexit. The Survey had been in negative territory since May of 2019 before printing levels of 11.2 and 25.6 in the last two months, so traders will be looking to see if the gains continue now that Brexit has concluded.
Chinese Stimulus Boosts Share Markets and Aussie Outlook
China’s central bank, the People’s Bank of China (PBoC) moved to stimulate the economy by cutting its medium-term lending rate by 10 basis points. The move saw Shanghai’s stock index move 2.8% higher with one of the best days since the virus crisis erupted. The gains and the hopes of improving the economic impact saw Australian shares register a 0.25% gain and the Australian currency outlook should get some support going forward once the economic data is priced in.
The euro currency has been under pressure recently against the US dollar and the British pound but has fared better against the Australian dollar. This dynamic may change if Australia’s economic improves but the bushfires and the slowdown effects from China may be another headwind for the Aussie in the near-term.
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