Australian Dollar Euro Exchange Rate Slumps After Private Capital Expenditure Disappoints Forecast
A surprise contraction in fourth quarter Australian private capital expenditure prompted the Australian Dollar to Euro (AUD/EUR) exchange rate to slump sharply.
Investors were disappointed to find that expenditure had fallen significantly short of forecast in the final quarter of 2017, clocking in at –0.2% rather than 1.0%.
This suggests that the Australian economy is in a weaker state than previously thought, with softer expenditure reflecting lower levels of confidence amongst businesses.
As a result, with market risk appetite already limited, the Australian Dollar (AUD) saw a fresh downtrend across the board on Thursday.
With markets still pricing in the likelihood of the Federal Reserve pursuing a more aggressive pace of monetary tightening over the course of 2018 support for the antipodean currency was generally limited.
Bullish Eurozone Manufacturing Sector Supports EUR Exchange Rates
The Eurozone economy continued to demonstrate strength, meanwhile, as the latest manufacturing PMI bettered expectations, putting additional pressure on the AUD/EUR exchange rate.
As Chris Williamson, Chief Business Economist at IHS Markit, noted:
‘Although the Eurozone Manufacturing PMI fell for a second successive month in February, the survey data indicate that factories are still enjoying their best growth spell for 18 years. The average PMI for the first quarter so far is the second-highest since the spring of 2000, falling just short of the near-record peak seen in the fourth quarter of last year.
‘The broad-based nature of the upturn is especially welcome, with all surveyed countries reporting solid rates of expansion. Even Greece is enjoying its fastest growth for 18 years.’
Encouragingly, the Eurozone unemployment rate also offered a positive surprise, with December’s figure revised down from 8.7% to 8.6%.
With unemployment across the currency union continuing to fall, even though it remains elevated in comparison to some of its rivals, confidence in the Euro (EUR) naturally strengthened.
While this is unlikely to be enough to materially alter the outlook of the European Central Bank (ECB) this stronger showing still paves the way for policymakers to adopt a more hawkish outlook in future.
Eurozone Political Risks Forecast to Boost Australian Dollar Euro Exchange Rate
Further volatility is likely in store for the AUD/EUR exchange rate on the back of January’s German retail sales data.
As forecasts point towards a solid rebound in sales on both the month and the year this could help to push the Euro higher across the board ahead of the weekend.
Fresh signs of strength within the Eurozone’s powerhouse economy are likely to put the AUD/EUR exchange rate under additional pressure.
However, confidence in the single currency is likely to remain somewhat limited in the near term as markets brace for the result of the latest Italian election.
Also in focus will be the results of the poll of SPD members, which will decide the future of the proposed German grand coalition.
If the SPD rejects the prospect of a fresh coalition with Angela Merkel’s CDU/CSU this could plunge Germany back into a state of political uncertainty, denting the Euro in the process.