The AUDEUR interbank exchange rate was trading over 1.50% in the European session after the European Central Bank (ECB) failed to cut interest rates. We stated yesterday that some were expecting a small rate cut of 0.1% but the ECB’s deposit rate is already -0.5% so they had little room to go. They did promise a stimulus package for markets, however.
The AUDEUR pairing was trading at 0.5670 and the Australian currency has been struggling to shake off the recent weakness.
ECB talks stimulus as markets continue to panic
With ECB rates already at zero, many did not expect a move to negative territory but a 0.10% cut to the deposit rate was suggested. The bank failed to deliver on rates and this has boosted the currency against the Aussie but details on the stimulus package were unclear.
Markets are in panic mode again over the effects of the virus and the European and Australian key indices were down around 1% as panic over another credit crisis sets in. Gold was lower by 3% on large volume and this hit to commodities is another drag on the Aussie dollar.
It’s hard to see how interest rate cuts can stimulate the economy because Central Banks have been making similar moves for months and the global economies seem to be in a race to negative rates. Tomorrow’s meeting will bring clarity on the ECB’s plans and this will drive the AUDEUR rate for the remainder of the week.
Westpac bank expects an Australian recession in early-2020
Another drag on the Australian currency outlook was a statement by the country’s Westpac bank that the country would see its economy contract by 0.3% in the first and second quarters of 2020.
The bank’s chief economist saw the economy bouncing back after the middle of the year, but his prediction was based on a “no fiscal stimulus package” basis so there may be potential to slow this dip or accelerate the second half bounce.
Despite fears over the Australian economy, traders are possibly ignoring the potential impact on western economies. China seems to have contained the spread of the virus in the country, while Europe is seeing a spread, especially when assessed per head of population. The impacts on the consumer-driven economies of Europe could mean that there is value emerging in the Australian currency rate versus its European counterpart.
If you’re considering buying or selling Australian dollars and would like to compare rates or know more about the factors that could impact your exchange rate, feel free to contact me directly using the contact form below. I look forward to hearing from you.