Australian Dollar to Euro Exchange Rate Touches Best Levels Since January on Political Jitters
Major political developments across the globe have taken centre stage in Australian Dollar to Euro (AUD/EUR) trade over the past week, and domestic data has failed to have a notable impact on either currency.
Surprising resilience in Australian Dollar (AUD) trade, as well as broad weakness in the Euro (EUR) trade, caused AUD/EUR to climb from 0.6379 to 0.6483 last week.
This week so far, the pair has climbed even further. AUD/EUR briefly touched on a high of 0.6527 during Tuesday’s European session, its best level since January. At the time of writing though, AUD/EUR trended closer to the key 0.6500 level.
The primary reason for AUD/EUR gains has been concerns about Eurozone politics. Rising expectations that Italy will hold another election later in the year have made markets anxious about the possibility of a potential ‘Italexit’ again.
Australian Dollar (AUD) Exchange Rates Volatile on North Korea Developments
The Australian Dollar has lacked in domestic support over the past week, but the currency has still seen strong performance thanks to risk-sentiment.
Hopes that geopolitical tensions between the US and North Korea are easing has made investors more willing to take risks.
While the Australian Dollar was briefly weakened by last week’s news that US President Donald Trump had pulled out of an anticipated US-NK summit, talks are ongoing in attempt to salvage the meeting.
During Tuesday’s American session, it was confirmed that one of North Korea’s top officials was headed to the US for talks.
This did boost risk-sentiment, but it also made the US Dollar (USD) much stronger. The US Dollar’s strength limited Australian Dollar demand and prevented AUD/EUR from holding its best levels.
Euro (EUR) Exchange Rates Sold as Italian and Spanish Political Jitters Take Hold
Even a volatile Australian Dollar was able to climb against the broadly weak Euro on Tuesday, as markets became increasingly anxious about Italy’s political outlook.
Over the weekend, Italy’s President vetoed a pick from the League and 5-Star Movement coalition government who was perceived as too Eurosceptic. As a result, the coalition’s attempt to form a government seemingly collapsed.
For now, the President has picked a temporary Prime Minister, Carlo Cottarelli, and the new PM has said Italy will likely see fresh elections by early 2019.
Concerns about the possibility of another Italian election as soon as September has made investors anxious, especially amid the prospect that Italy’s Eurozone membership could be a platform during the campaign.
According to Neil Wilson, chief market analyst from Markets.com:
‘For now this looks contained largely to Italy, but the contagion risks mount. Italian bond moves are isolated and whilst the Euro has given some ground again it is mounting a firm defence above 1.15 for the time being. Italian stocks today are underperforming Europe, with the FTSE MIB falling more than 3% before bargain hunters produced a slight paring of the losses.’
Australian Dollar to Euro (AUD/EUR) Forecast: Major Ecostats and Political Developments Ahead
Demand for the Australian Dollar is likely to be driven by geopolitical developments regarding North Korea, or perhaps US-China trade developments, for most of the week.
Friday’s Australian manufacturing PMI could be influential too, but with major Eurozone data and political news ahead the Euro is more likely to drive the Australian Dollar to Euro (AUD/EUR) exchange rate.
A slew of Eurozone ecostats will be published on Wednesday, including German retail sales, unemployment and inflation results. Eurozone business confidence survey figures and French growth projections will be published too.
Perhaps the week’s most influential ecostats will come in on Thursday though, with French and Eurozone May inflation projections, as well as Eurozone unemployment data, due for publication.
Of course, even if Eurozone data is unsurprising, major political news from Italy could drive the Euro.
Spanish political uncertainty also has the potential to drive Australian Dollar to Euro (AUD/EUR) exchange rate trade this week, as Spain’s Prime Minister could face a vote of no confidence on Friday.