This morning the Australian dollar to euro interbank exchange rate was ranging between a low of 0.5888 and a high of 0.5925. With over 1.2 million Coronavirus cases in the Eurozone, it is the worst affected area compared to only just over 6,600 cases in Australia. Australia’s figure looks a far smaller problem in comparison to the Eurozone and a recovery relative to other nations could prove supportive to the Australian dollar.
European Central Bank To Consider Junk Bonds
The European Central Bank (ECB) has changed its stance on “fallen angel” bonds as collateral as a result of the decrease in the status of corporate and sovereign debt in countries such as Italy and Spain. Standard and Poor’s, the ratings agency, has indicated that Italy’s assets are close to junk status. Next week the European Central Bank governing council will meet, and there is speculation that they may include some junk bonds as collateral against lending to some member states.
German services and manufacturing Purchasing Manager’s Index (PMI) for April released yesterday came in lower than expected at 15.9 versus a forecast 28.5 and 34.4 versus a forecast 39.0 respectively. Eurozone services and manufacturing purchasing managers index for April also came in lower yesterday at 11.7 versus a forecast 23.8 and 33.6 versus a forecast 39.2 respectively. This caused core Eurozone bond yields to fall towards their all-time lows.
ECB Rate Cut Prospects In July
The weaker economic data could see the European Central Bank more dovish at its July meeting, suggesting more policy action could be taken. The markets are now pricing in around a 53% chance of a 10-basis-point rate cut by the European Central Bank in July’s meeting.
On the Eurozone side, the market will be eyeing Germany’s business expectations and current assessment and paying particular attention to Germany’s Ifo business climate index for April which is currently forecast at 80 versus a previous reading of 86.1.
Increase In Demand In China Supportive Of The Australian Dollar
How quickly Australia’s economy recovers from the current Coronavirus could well depend on the performance of China’s economy, due to the close trading links between the two countries. Now that China has started to resume business and as the supply and demand increase out of China, this in turn could help Australia with an increase in demand for exports of their natural resources.
If the lower number of cases can be sustained, then that might help gain support for the Australian dollar currency and we could see the AUD to EUR forecast come in higher.
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