EUR/AUD, or euro to Australian dollar, is relatively lightly traded currency pair. Both currencies tend to strengthen when economic growth is high and sell off during downturns. Thus big moves in this pair only occur if there is a specific event unfolding in the Eurozone or in Australia specifically. For example, EUR/AUD was fairly weak between 2010 and 2013 as debt problems in the Eurozone weakened the euro. On the other hand, the Australian dollar was very strong during this period thanks to strengthening commodity prices.
The euro is mixed today. The common currency is selling off against the US dollar and the British pound, while making gains versus the the Australian dollar and the Japanese yen. Yesterday, the euro strengthened against the US dollar following significant weakness. Today, the currency has resumed weakening as the spread between US and Eurozone bond yields trades near all-time highs.
Turning to recent news and events, German IFO expectations were significantly below estimates and slowed from previous monthly figures. As Eurozone sentiment data weakens, the outlook for growth this year is worsening as a result. In a previous commentary on the euro, we wrote that decelerating economic growth will ultimately force the ECB into more accommodative monetary policy. Yesterday, we published a preview of the upcoming ECB meeting (scheduled for tomorrow). We argue that the Bank is unlikely to communicate any change in forward guidance (or hint at ending its asset buying program later this year). Instead, we argue that Draghi will buy more time to see if growth continues to decelerate this year. Our short-term outlook on the euro is bearish, while our medium-term outlook is neutral.
EUR/USD is down slightly and trading above 1.2210. The euro is up slightly against the yen, with EUR/JPY trading above 133.20. Finally, the euro is down against the pound, with EUR/GBP above 0.8740.
Looking at this week’s economic events from the Eurozone, the most important event includes an upcoming ECB interest rate decision. Eurozone manufacturing PMIs for April (56 vs 56.1) were below expectations. Services (55 vs. 54.6 expected) and composite (55.2 vs. 54.9 expected) PMIs were ahead of expectations. German IFO expectations for April (98.7 vs. 99.5 expected) were significantly below estimates. Tomorrow, the most important day, we’ll see the ECB’s latest interest rate decision and hear from ECB President Draghi. We’ll also see May GfK consumer confidence from Germany. On Friday, we’ll get German unemployment figures. We’ll also see a range of sentiment data from the Eurozone for April (services sentiment, economic sentiment, business climate, industrial confidence and consumer confidence). Last week, the ZEW sentiment survey for April was below estimates.
The Australian dollar is currently selling off sharply, and is weaker against all major currencies. AUD is currently the weakest against the US dollar. Yesterday, AUD/USD failed to strengthen despite broad strength in the US dollar. The currency remains in a firmly bearish trend as Chinese GDP growth decelerates while the Reserve Bank of Australia remains on hold.
There are no significant news headlines from Australia today, as the country is on holiday for ANZAC Day. Instead, the Australian dollar is selling off as risk sentiment worsens. Following yesterday's stock market sell-off during US trading hours, Chinese equity markets are lower today. China-sensitive commodities, such as industrial metal prices, are also falling sharply today. As we have written before, rising bond yields are hurting asset prices thanks to decelerating global growth. While rising yields have had a limited impact on riskier investments in the past, investors are reluctant to chase risky investments today thanks to the worsening outlook for growth this year. Our short-term outlook and medium-term outlook on the Australian dollar remains bearish.
AUD/USD is down and trading just above 0.7570. EUR/AUD is up slightly and trading above 1.610. GBP/AUD is up slightly and trading above 1.8410.
Turning to economic data and events from Australia this week, traders will be watching upcoming inflation figures. RBA Assistant Governor Kent downplayed fears regarding interest-only mortgages. The Q1 consumer price index (1.9% vs. 2.0% expected) was below expectations, while the RBA’s trimmed mean CPI (1.9% vs. 1.8% expected) was ahead of expectations. On Thursday, we’ll see the export and import price index for Q1. On Friday, we’ll see producer prices for Q1. Last week, changes in employment missed expectations.
As the pair trades sideways, we are now neutral on EUR/AUD as a result. The currency pair is now trading within a normal range. This is based on technical indicators on the daily chart.
As the euro continues to make gains, we are upgrading EUR/AUD to bullish in the medium-term. Note that the pair is now trading within normal conditions, based on technical indicators on the weekly chart.
Earlier today, we downgraded our euro outlook to neutral in the medium-term, and bearish in the short-term. As the euro runs out of momentum, the trend is now neutral based on quantitative factors such as price, trading volumes and volatility. While forward-looking economic indicators continue to suggest an ongoing expansion, growth appears to be slowing in rate-of-change terms. This is why our p…
In our previous take on the euro in late February, we wrote that the bullish case for the currency was looking increasingly challenging. At the time, euro speculators were spooked by slowing forward-looking economic indicators, while upcoming political events in Italy and Germany risked the future unity of the region. While our outlook remains mildly bullish, this comes with the significant cavea…
Improving growth and falling political risk are pushing the Euro higher, but constant changes in the landscape put this movement at risk. Significant declining trends will impact the euro forecast - and speculators and traders should take note of the increased risk.
We take a closer look at the Australian dollar forecast, and how domestic and international economic changes are set to impact the currency. From China's slow down to key domestic indicators that reveal slowing growth, we break down why we're changing our outlook on this commodity currency.
For a currency that strengthens when global growth accelerates, recent moves in the Australian dollar have been fairly disappointing. While the currency rocketed higher between mid-December and late January, the Australian dollar has sold off sharply in recent weeks. The currency first began weakening against the Japanese yen, which led us to downgrade our short-term AUD/JPY outlook to neutral on…
Looking at the latest COT report, there are new extremes in short Australian dollars and long euro positions. Long crude oil net positions continue to look fairly crowded. The US dollar remains out of favor, but positioning is not yet at a bearish extreme. Notable e…