Chinese Industrial Production Smashes Forecasts – AUD Exchange Rates Bolstered
The Australian Dollar to Euro (AUD/EUR) exchange rate rallied on Wednesday, supported by a raft of upbeat domestic data releases from China (Australia’s #1 export audience).
According to the latest Chinese economic releases, industrial production rose by a whopping 7.2% in February, a whole percentage point above forecasts.
This was the biggest expansion seen since last June, a surge that suggests that the Chinese economy has had a very strong start to the year indeed.
In other news, Chinese fixed-asset investment also surged by 7.9%, smashing expectations of a 7% gain.
This is all pertinent in that any expansion in Chinese production tends to be accompanied by an expansion in their demand for commodities, thus making commodity currencies like the Australian Dollar even more attractive in the eyes of the markets.
This outlook has also been supported by relative quiet on the trade war front and with Australia being granted exemption in US President Donald Trump’s import tariffs – joining Canada and Mexico.
EUR Exchange Rates Limited by Slowing Industrial Production in the Bloc
The bloc’s own industrial production figures were not quite as robust.
According to Eurostat, industrial production in the bloc dropped to -1% month-on-month in January, down from the previous period’s print of 0.4% and indeed the market forecast of 0.3%.
The yearly reading similarly disappointed, decelerating to 2.7% – missing both the forecast and the previous period.
To make matters worse for the single currency, employment in the bloc contracted, with the number of employed persons falling both on the year and the quarter of Q4 2017.
This left the Euro with very little room to manoeuvre, particularly with European Central Bank (ECB) President Mario Draghi also further tempering expectations that the ECB could be moving to normalise its policy measures towards the end of the year.
AUD/EUR Exchange Rate Forecast: Eurozone Inflation in the Spotlight
The Australian Dollar Euro (AUD/EUR) exchange rate could see volatility on Friday as markets react to the bloc’s highly anticipated inflation readings.
Analysts are currently expecting consumer price inflation to shrink from 1.3% to 1.2% year-on-year in February, though the monthly reading is forecast to steadily climb.
These will be pertinent after Draghi’s latest comments which highlighted the fact that the bank is waiting for inflation to speed up before it would consider moving to end its stimulus measures.
In this respect, a better-than-expected reading could push the ECB closer to ending its quantitative easing scheme, thus driving support back to the Euro.
A notable fall, however, would put inflation even further away from the central bank’s target, an eventuality that could provide even more support for the AUD/EUR exchange rate.