Australian Dollar to Euro Exchange Rate Drops on Fears for Low Chinese Demand
The Australian Dollar to Euro exchange rate (AUD/EUR) has declined recently, while the AUD has also fallen against the Pound, the US Dollar and the New Zealand Dollar.
This AUD weakness follows speculation that iron ore prices could fall by -20% in 2018, due to reduced demand from Chinese steel manufacturers.
China has been Australia’s longtime trading partner partly because of its demand for iron ore, which is used in the nation’s steel manufacturing industry.
The prediction that iron ore prices could drop off this year come from Australia’s Department of Industry, Innovation and Science, in a recent report.
The Department says that;
‘The iron ore price is expected to experience ongoing volatility in early 2018, as the market responds to uncertainty regarding winter production restrictions on iron ore demand.
It is likely that there will be robust growth in steel production and iron ore demand after the winter production restrictions are lifted.
However, beyond the first half of 2018, the iron ore price is forecast to decline’.
The Department has added that the Chinese government remains a key influencer in this situation, stating;
‘There are conflicting forces influencing the iron ore price.
China’s steel production is sensitive to a range of government policies, [which] remain the key uncertainty underpinning the outlook’.
If iron ore prices do drop off in the coming months, the Australian Dollar could decline because of concerns about lower revenues for national exporters.
Euro to Australian Dollar Exchange Rate (EUR/AUD) Rises on Eurozone Confidence Growth
Euro traders have had a better start to the week, with Eurozone-wide confidence growth pushing the EUR/AUD exchange rate up by 0.4%.
In almost all fields, Eurozone confidence rose in December, while reported retail sales also exceeded forecasts in November.
The main confidence takeaways were higher economic sentiment, higher business confidence and greater optimism about the services and industrial sectors.
The economic confidence reading was at the highest level in 17 years, while the industrial sentiment score remains at its highest point on record.
This has been good news for the Eurozone, but as the Euro dropped against the US Dollar and the Pound, EUR traders may be paying more attention to inflation forecasts.
Consumer inflation expectations for December have fallen from 16 points to 13.6, which means lower confidence in Eurozone inflation remaining high in 2018.
Lower inflation reduces the chances of a European Central Bank (ECB) interest rate hike, so traders may have been panicking about the implication.
Australian Dollar to Euro Recovery Possible if Business Confidence Picks Up
The Australian Dollar might turn the tables on the Euro on 10th January, if the morning’s NAB business confidence reading rises.
The figure is tipped to increase, so could well trigger an AUD/EUR rally if Australian Dollar traders can tear themselves away from iron ore prices.
Before 10th January, the Euro could extend its gains against the Australian Dollar on 9th January.
The German trade balance will be announced on Tuesday, along with Eurozone unemployment readings for November.
Positive results are forecast in both cases; the trade surplus is tipped to expand and unemployment is on track to have fallen in November.