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 currently recovering against the US dollar, Japanese yen and Canadian dollar, while selling off against the Australian dollar. Yesterday, the euro sold off sharply against the US dollar. Notably, trading volumes in euro futures accelerated for the third session in a row. The combination of yesterday's weakness and rising volumes suggests that traders are selling the currency with conviction. Today's EUR/USD trading range is 1.1430 - 1.1860.
Following news that the European Commission called Italy's draft budget an "unprecedented" breach of Eurozone fiscal rules, the euro weakened sharply yesterday. According to a Reuters report, the Commission stated that Italian government spending was too high, the structural deficit was likely to rise and that Italian public debt would not fall in line with the EU's rules. ECB President Mario Draghi has also weighed in on Italy's fiscal budget, stating that undermining the rules carry a high price for all members of the monetary union. Looking at reactions in markets, 10-year Italian government bonds (BTPs) sold off sharply yesterday and continue to sell off today. 10-year BTPs are currently yielding 3.7% today. Note that bond prices move lower as bond yields rise. While today's BTP sell-off is having a more limited impact on the euro, the common currency is likely to remain under pressure as Eurozone growth continues to slow in rate-of-change terms.
Looking beyond bond markets, the latest developments from Italy are also tempering rate hike expectations. While investors expected the European Central Bank to raise rates by 10 basis points (0.10%) in September 2019, this is no longer the case today. While ECB speakers remain optimistic for future growth in the region, markets appear to be taking a different view. Our outlook on the euro remains bearish.
EUR/USD is up slightly and trading above 1.1460. The euro is up against the yen, with EUR/JPY trading above 128.80. Finally, the euro is flat against the pound, with EUR/GBP above 0.8790.
|October 15||Bundesbank Beermann Speech|
|October 15||ECB Nouy Speech|
|October 16||Germany Import Prices YoY AUG||4.8%||4.8%|
|October 16||Eurozone Balance of Trade AUG||€11.7B||€17.6B|
|October 16||Eurozone ZEW Economic Sentiment Index OCT||-19.4||-7.2|
|October 16||Germany ZEW Current Conditions OCT||70.1||76|
|October 16||Germany ZEW Economic Sentiment Index OCT||-24.7||-10.6|
|October 17||Eurozone Construction Output YoY AUG||2.5%||2.2%|
|October 17||Eurozone Core Inflation Rate YoY Final SEP||0.9%||0.9%|
|October 17||Eurozone Inflation Rate YoY Final SEP||2.1%||2%|
|October 17||Bundesbank Weidmann Speech|
|October 18||Germany Wholesale Prices YoY SEP||3.5%||3.8%|
|October 19||Eurozone Current Account AUG||€20.5B||€30B|
The Australian dollar is currently strengthening against all major currencies. The aussie is up the most against the Canadian dollar today. Yesterday, the Australian dollar ended the day slightly lower against the US dollar. Notably, trading volumes in Australian dollar futures accelerated for the fourth session in a row, rising above 30-day averages. While rising volumes are usually notable, this was not the case yesterday as prices only moved by a small degree. Today's AUD/USD trading range remains 0.7080 - 0.7350.
While yesterday's employment changes slowed relative to the previous month (and fell below consensus expectations), foreign exchange traders appeared to be more focused on the falling unemployment rate. While the US dollar was up sharply yesterday, AUD/USD ended the session mostly unscathed. Earlier this week, the RBA's Debelle suggested that wage growth is likely to remain weak thanks to a relatively high rate of unemployment. The RBA has previously communicated its desire to see accelerating wage growth before raising interest rates. Yesterday's data suggests that unemployment is now falling, in turn making a rate hike more likely.
Looking at the aussie today, the currency is rallying in line with a rebound in riskier assets. Following a strong session for most major Asian equity markets this morning, US equity markets and commodities are also rallying. Looking across different asset classes, the S&P 500 is currently up by 0.3% while copper prices are up by more than 1.5% today. As a 'risk on' currency, day-to-day trading in the Australian dollar is often a function of developments in riskier asset classes.
Despite today's rebound, slowing global growth (now with the US entering a slowdown) means that the Australian dollar is likely to remain under pressure. Our outlook on the Australian dollar remains bearish.
AUD/USD is up and trading just above 0.7130. EUR/AUD is flat and trading above 1.6140. GBP/AUD is down slightly and trading above 1.8280. AUD/JPY is up, and trading above 80.20.
|October 16||RBA Meeting Minutes|
|October 17||RBA Debelle Speech|
|October 18||Employment Change SEP||5.6K||44.6K|
|October 18||Full Time Employment Chg SEP||20.3K||33.7K|
|October 18||Unemployment Rate SEP||5%||5.3%|
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