Euro to Australian Dollar (EUR/AUD) Exchange Rate Struggles to Capitalise on Muted RBA Meeting Minutes
The impact of the Reserve Bank of Australia’s (RBA) April meeting minutes proved rather limited, keeping the Euro to Australian Dollar (EUR/AUD) exchange rate on a narrow trend.
It came as little surprise to investors that the RBA had maintained a rather neutral tone at its April meeting, indicating that policymakers remain in no hurry to return to a monetary tightening bias.
Even so, this kept confidence in the Australian Dollar (AUD) rather limited, with an interest rate hike still looking a rather distant prospect.
As Bill Evans, research analyst at Westpac, noted:
‘While the RBA’s rate outlook is consistent with their forecasts, the risks to that outlook continue to accumulate. Emphasising that progress towards lower unemployment and higher inflation will “be only gradual” appears to be a clear signal that the Bank is undecided at this point and will require quite some time before it can be confident with its view.
‘Westpac continues to expect that rates will be on hold for the remainder of 2018.’
Although market jitters eased somewhat on Tuesday, with global geopolitical tensions showing no fresh signs of escalation, this failed to particularly benefit Australian Dollar exchange rates.
Confirmation of Stronger Eurozone Inflation Forecast to Boost Euro to Australian Dollar (EUR/AUD) Exchange Rate
Greater weakness could be in store for the Euro to Australian Dollar (EUR/AUD) exchange rate in the near term, with markets awaiting the finalised Eurozone consumer price index data for March.
Confirmation that inflation picked up should offer support to the Euro (EUR), even though the odds of any imminent shift in the European Central Bank’s (ECB) outlook are limited.
While inflation of 1.4% is still a long way short of the ECB’s 2% target this could still limit the downside potential of EUR exchange rates.
A stronger showing from Friday’s German producer price index may add to a more bullish EUR mood, encouraging hopes that inflationary pressure is continuing to mount across the currency union.
On the other hand, any softening in price pressures would give investors fresh incentive to sell out of the Euro, to the detriment of the EUR/AUD exchange rate.
EUR/AUD Exchange Rate Softness Forecast on Falling Australian Unemployment Rate
With forecasts pointing towards a fresh dip in the Australian unemployment rate the Euro to Australian Dollar (EUR/AUD) exchange rate may see a sharp slump on Thursday.
Although further tightening of the Australian labour market is unlikely to alter the outlook of the RBA at this stage a stronger showing could still boost Australian Dollar exchange rates.
However, the risk-sensitive AUD remains vulnerable to any deterioration in global market sentiment.
Any fresh escalation in tensions between the US and either Russia or China could put a significant dampener on demand for the Australian Dollar.
A resurgence in investor risk appetite, though, may leave the Euro to Australian Dollar (EUR/AUD) exchange rate on a weaker footing ahead of the weekend.