The AUD/EUR exchange rate remains weak as markets await the latest monetary policy decision from the Reserve Bank of Australia (RBA), with continued fears over the impact of new US trade tariffs on steel and aluminium imports further muting appetite for the Australian Dollar.
The RBA is unlikely to announce any changes to monetary policy this time around, but markets will still be watching closely for signs that the outlook on interest rates has shifted.
Meanwhile, fears that a 25% tariff on steel imports and 10% on imports of aluminium in the US could damage the Australian economy, which still largely relies upon the export of iron ore, is pushing the Australian Dollar lower against the Euro.
Iron ore is a key steelmaking ingredient and Australia is the world’s largest exporter of the commodity by far, accounting for 55% (US$39.5 billion) of the total global exports during 2016; by comparison the second-largest exporter is Brazil, which accounted for 18.5% (US$13.3 billion), while the US exported just 0.8% (US$569.4 million).
AUD/EUR Exchange Rate Weakens despite Eurozone Political Concerns and Economic ‘Speed Bump’
Australian Dollar weakness has dragged the AUD/EUR exchange rate lower, even though recent Eurozone data has shown that the currency bloc economy hit a ‘speed bump’ in February.
Italian, French and Eurozone wide services and composite indices for last month were all unexpectedly revised lower in their finalised forms compared to previous estimates, although the German composite index was raised against forecasts for no change.
As with much of the Eurozone data over the past few weeks, any poor results need to be taken with a pinch of salt; regardless of the latest readings the currency bloc economy is still on track to record its best growth rate in around eight years.
Markets are also worried by the results of the recent Italian general election, which revealed that support for the establishment has collapsed, with voters backing Eurosceptic and far-right parties over the ruling Democratic Party.
The most votes have been collected by the Five-Star Movement, which lists finding an alternative to the Euro as one of its major policies, but the most seats in Parliament have gone to a coalition of parties including the far-right League that is led by ex-Prime Minister Silvio Berlusconi and his Forza Italia party.
Regardless, none of the latest developments have been enough to make the Euro seem a less favourable bet than the Australian Dollar, keeping the AUD/EUR exchange rate firmly on the decline.
Australian Monetary Policy Outlook Forecast to Weigh on AUD/EUR Exchange Rate
The Reserve Bank of Australia will announce its latest monetary policy decisions early this afternoon.
Policymakers are focused on unemployment and inflation, so signs that the board is becoming more optimistic over these two key economic measures could give the Australian Dollar a lift.
However, the AUD/EUR exchange rate may remain on muted form given that RBA Governor Philip Lowe is due to give a speech in Sydney tomorrow, affording markets a much better insight into the mindset of Australia’s rate setters.
Meanwhile, Eurozone retail PMIs for February could provide further support to the Euro if the results match or exceed expectations.
That is assuming that nothing emerges from the Italian political sphere to excite or worry markets.