ECB Outlook Remains Resolute, Euro (EUR) Exchange Rates Rally in Relief
The Australian Dollar Euro (AUD/EUR) exchange rate took a tumble on Thursday as markets responded to the first monetary policy meeting for the European Central Bank (ECB) for 2018.
Whilst the ECB did not raise interest rates at this meeting, markets were pleased to discover that the central bank’s outlook remains unchanged; upbeat, but sensitive to the ongoing issue of weak inflation levels.
ECB President Mario Draghi stressed during the accompanying press conference that; ‘There is no difference between the accounts (minutes) and what I said in the (previous) press conference’.
Draghi also went on to say:
‘There hasn’t been much of a change in outlook, except a strengthening of the economy… by and large, risks are balanced… Can we declare victory? No. Price pressures along the pricing chain remain subdued’.
On an optimistic note he did reiterate that the bank expects underlying levels of inflation to rise gradually over the medium term, however, supported by various monetary policy measures and ongoing economic expansion.
This proved enough for markets to buy back into the Euro, particularly with the US Dollar currently in the midst of a slump.
US Dollar Weakness Supports Australian Dollar (AUD) Exchange Rates
The US Dollar’s (USD) current dip continues to benefit the Australian Dollar, with markets concerned that America’s latest implementation of tariffs will provoke a trade war.
The White House recently applied trade tariffs on foreign washing machines and solar panels in an attempt to better positon US corporations on the world stage; a measure that quickly resulted in soaring share prices for the American firm ‘Whirlpool’.
‘By enforcing our existing trade laws, President Trump has ensured American workers will compete on a level playing field with their foreign counterparts’, said Jeff Fettig, Whirlpool Chairman.
The market response to this news was less than positive, however, with investors worried that the US will continue further down the trade tariff road and potentially risk enflaming trade relations with important partners.
Whilst this was enough to support the Australian Dollar, it was not enough to push the AUD/EUR exchange rate out of the Euro’s favour.
AUD EUR Exchange Rate Outlook Darkens on Gloomy Iron Ore Forecast
The Australian Dollar Euro (AUD/EUR) exchange rate could encounter greater turbulence in the coming weeks if iron ore prices continue to suffer.
Markets have grown increasingly worried about iron ore’s predicament, with the commodity facing issues of oversupply and potentially a massive drop in demand as China attempts to curb its levels of pollution.
Analysts at ANZ Bank have asserted that this will likely take the form of falling output in Chinese steel mills, of which iron ore is a necessary component.
One spokesperson stated:
‘Iron ore demand is really weak as steel mills are curbing output. Futures prices in China failed to gain any traction as traders failed to follow through with purchases following the strong close last week’.
If the iron ore surplus continues to grow and demand continues to decrease then oversupply for this commodity could become a significant issue; an eventuality that could limit the AUD/EUR exchange rate moving into 2018.