The AUD v EUR exchange rate was trading over 0.30% higher in the European session as traders await the key European Central Bank meeting tomorrow. The Aussie dollar to Euro pair was trading above 0.5760 and volatility will likely be low until the ECB delivers clarity tomorrow on their plans to support the economy.
Despite analysts expecting no cut in rates, the ECB will be under pressure to act after the UK cut interest rates by 0.50% in an emergency move earlier today.
Lagarde warns of virus impact ahead of ECB meeting
Analysts are not expecting the ECB to do much at tomorrow’s meeting because the current ECB deposit rate is already in negative territory. Economists at Deutsche Bank were one group that expected a small cut of 0.10% to the deposit rate alongside some effort to support SME lending. The UK have created a similar program that could provide up to £100 billion of cheap loans for companies that are struggling with the impacts of the virus.
The bank’s president Christine Lagarde has repeatedly called for governments to take action and said that without extra support there could be scenario that, “…will remind many of us of the 2008 great financial crisis.”
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 AUD v EUR rate for the remainder of the week.
A quiet end to the week for both economies will focus on headline risk
The Australian and European economies will not see any market-moving data releases into the end of the week so any movement will be driven by the ECB meeting and then any escalation of the virus in either nation.
In total Australia has seen 127 virus cases with 3 deaths, whilst in Europe the figure is higher, with Italy seeing 631 deaths and Spain and France seeing 33 and 49 respectively. At present it seems the risk lies with Europe and after recent strength in the Euro, tomorrow’s ECB meeting and virus risk have the potential to start seeing a recovery in the Australian dollar currency.
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