Currency News News AUD EUR Australian Dollar to Euro Exchange Rate Drops on RBA Rate Cut Fears

Australian Dollar to Euro Exchange Rate Drops on RBA Rate Cut Fears

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Negative Expectations for Australian Interest Rates Weaken AUD/EUR Exchange Rate

The Australian Dollar to Euro exchange rate has fallen -0.4% today, while sizable losses have also been seen against the US Dollar and Chinese Yuan.

The latest decline in the Australian Dollar’s value has been caused by concerns about the next Reserve Bank of Australia (RBA) interest rate change.

There were hopes that the RBA could raise interest rates for the first time since 2010 in 2018, but now the concern is that a rate cut may be more likely.

These assumptions come after the release of Australian Bureau of Statistics (ABS) data, which estimates that inflation growth is reliant on volatile factors.

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Taking these ‘fast five’ factors (fuel, healthcare, education, tobacco and utilities) into account, Deutsche Bank Chief Economist Adam Boyton has warned that;

‘If the pace of inflation everywhere else in the CPI basket were to remain unchanged, and the slowing across the ‘fast five’ were to occur, then the increase in the headline CPI over the year to December 2018 would be around 1.4%’.

This would notably reduce the chances of an RBA interest rate hike in the future, as lower inflation equals reduced pressure to consider a rate hike.

Limited AU Wage Growth Reduces Interest in Australian Dollar

The AUD/EUR rate has also fallen today because of pessimism about long-term wage growth in Australia, another limiting factor on RBA interest rate decisions.

Although the unemployment rate fell overall in 2017, the pace of wage growth has remained stubbornly low.

Problematically, Prime Minister Malcolm Turnbull hasn’t outlined any solid plans for increasing national salaries, instead saying;

‘The laws of supply and demand have not been suspended.

Wages growth will come, because a stronger economy results in more investment, more jobs and more intense competition between employers for workers’.

This ‘wait-and-see’ approach has done little to raise economic optimism in Australia, instead dragging the value of the Australian Dollar down.

Euro to Australian Dollar Exchange Rate Advances on Strong Eurozone Factory Data

The Euro has been in high demand today, rising by 0.4% against the Australian Dollar and the New Zealand Dollar.

This advance comes from the news that Eurozone production levels are at record highs thanks to factory activity.

The European Central Bank’s (ECB) decision to cut interest rates to 0% and implement quantitative easing has been partly responsible for this surge.

Summarising the Euro-supporting news, IHS Markit Chief Business Economist Chris Williamson said;

‘The Eurozone’s manufacturing boom continued in full swing in January. Output grew at one of the fastest rates recorded over the survey’s 20-year history, matched by a further near-record surge in new orders’.

Australian Dollar to Euro Exchange Rate Forecast: AUD Advance possible on Services Stats

The next Australian economic data to watch out for will come on 5th February, consisting of the AIG services index for January.

This measure of services sector activity is tipped to show growth from 52 points to 52.4, so a small Australian Dollar to Euro advance may take place if forecasts are accurate.

Sticking with activity measures, Eurozone composite and services PMI figures will be out on Monday, along with retail sales figures.

Overall economic activity is predicted to have risen, which may override any negative impacts from possibly slowing retail sales figures later in the day.

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