The Australian dollar continued it’s impressive run against the euro last week, chipping away a further 1.5% to hit the high 0.58s and capping off around an 8.5% gain since the end of March on interbank exchange rates.
This considerable change in trend reflects the shift of confidence within the markets. With major central banks around the globe promising uncapped funding to support the economy we are seeing investor appetite spike once more which in turn is seeing a change in fortune for the commodity-based currencies like the Australian dollar. The question is, how far will this renewed confidence go and can it take the AUD back to the stable levels it was enjoying before the virus shook the markets?
The Reserve Bank of Australia (RBA) certainly seem to think so with governor Philip Lowe expected to express his confidence that the Australian economy can handle the pressures the virus generating, to the point where the RBA is already outlining details of tapering it’s bond buying scheme. As a result we could see further opportunities for Australian dollar holders to buy foreign currency overnight at this evening’s interest rate meeting.
Importantly, it is worth remembering Australia recently posted it’s first Current Account surplus in 44 years. Economists are already stating this will go along way to helping Australia protect it’s AAA status, which could bolster foreign investment and build further appetite for the Australian dollar moving forward.
Global Market Concerns and Weakening Chinese Data Capping AUD Prospects?
It will be interesting to see how the markets react to wider pressures that could impact the Australian dollar however. Given the fact that over the weekend, the International Monetary Fund indicated they believe the upcoming impact of the virus on the global economy could be worse than the 1930s great depression. Historically, when the global outlook has weakened we have seen investors shift their positions towards the safe heaven currencies much to the demise of the Australian dollar.
Crucially, Australia’s main trading partner China posted it’s first quarterly contraction since 1992. A worrying fall of nearly 7% drawing plenty of question marks of how this might affect Australian import/export figures in the months ahead. A trend that could draw considerable volatility to AUD EUR exchange rates in the long run.
What Might be Driving the Euro this Week?
On the flip side, the euro has started the week on the back foot against the majority of it’s currency counterparts with another set of contracting data from European powerhouse Germany setting the single currency back. The latest inflation data (Producer price index) surprised the markets with a month on month contraction for March hitting a worrying -0.8%.
It will be interesting to see if this filters through to tomorrow’s business confidence release too, which could well set the trend for AUD EUR exchange rates for the rest of the week. It might be worth planning a transfer around this release as a result. Feel free to register your interest using the form below.