The AUDEUR exchange rate moved lower again on Monday by 0.45% with the pair trading at 0.5870. The rate has drifted from 0.6200 in the middle of February to the current levels due to negative expectations for the Australian economy and signs that Europe’s economies may be out of the worst of their slump.
Markets Expect Another 0.25% Cut to Interest Rates
Tomorrow sees the latest interest rate decision by the Reserve Bank of Australia (RBA) with analysts expecting the bank to cut the key interest rate by another 0.25% to 0.5%. The rate has been at the current level since October last year and many expected to see a cut last month due to the effects of the wildfires on some parts of the country.
Following the spread of the Coronavirus in China, the Aussie currency has been weakening due to the impact that China’s slowdown will have on Australia’s economy and export companies and analysts are certain that the RBA will act to reduce rates in an attempt to stimulate the economy. Another key release for the Australian dollar comes on Wednesday with the release of the fourth quarter Gross Domestic Product (GDP) data. The market expects year-on-year growth to come in at 2.0% and any change to that figure could affect the future path of the AUDEUR pair.
Coronavirus Still a Potential Headwind for the European Economy
An interest rate cut would be negative for the Australian dollar but there is speculation that central banks globally will use the Coronavirus spread to cut their own key interest rates with many expecting the U.S. Federal Reserve to take action. This will remove some of the negativity surrounding the RBA rate decision.
Europe reported a 44% increase Coronavirus cases overnight and has seen 2,100 cases in 18 EU states. EU economics commissioner Paolo Gentiloni told reporters that they would take action if necessary, saying, “The EU is ready to use all the available policy options if and when needed to safeguard our growth.” Markets will now use the RBA rate decision and the latest GDP figure to guide the Australian currency outlook in the near-term. A further spread of the Coronavirus in Europe could erase some of the recent losses in the Aussie currency if Europe’s economy is affected.
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