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AUD EUR Exchange Rate Pares Gains as Market Risk Aversion Rises

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The AUD EUR exchange rate pared recent gains on Thursday (despite some positive economic news and a disappointing Eurozone inflation print) with markets becoming increasingly risk averse before the imminent US Senate vote on tax reform.

Australian Data Proves Mixed AUD Exchange Rates Fail to Capitalise

Data from Australia today was slightly mixed. On one hand, building permits rose unexpectedly by 0.9% in October, up from the previous (downwardly revised) figure of 0.6%, beating the forecast of a -0.6% contraction. On the other, private capital expenditure year-on-year printed at 5.3%, in line with forecasts but down from the previous period’s 5.4%.

Beyond this, private capital expenditure remained roughly the same quarter-on-quarter in Q3 by printing at 1.0%, in line with the 1.0% consensus but inches below the previous period’s upwardly revised 1.1%.

On the iron ore front, prices pushed past $68 per tonne cfr China on Thursday, with a jump in futures and a surge in rebar prices helping facilitate its rise.

Ultimately these figures were not enough to buoy the AUD EUR exchange rate, however, with the ‘Aussie’ Dollar being very sensitive to risk aversion and markets being quite unsure of what to expect from the imminent US Senate vote on tax reform.

EUR Exchange Rates Climb Despite Poor Inflation

At first glance the Euro’s rise this afternoon seems somewhat out of place. Inflation within the bloc likely did not bolster demand for the single currency, with the headline reading printing at 1.5% year-on-year in November, up from the previous period’s 1.4% but below the expected 1.6% and the core reading disappointing even more by printing limp at 0.9%.

German retail sales proved similarly poor, contracting from 4.1% to -1.4% year-on-year in October.

In slightly better news, unemployment within the bloc dropped from 8.9% to 8.8%, still admittedly high but moving in a positive direction.

The Euro’s main advantage, however, is its reliability in times of risk aversion in comparison to the more volatile currencies like the Australian Dollar, a quality that has driven it to increase in demand today.

AUD EUR Forecast: Volatility Ahead on US Tax Reform

The AUD EUR exchange rate could become volatile depending on the result of the US tax reform vote.

The Republicans are within touching distance of successfully passing tax reform in the US, with the final vote on the bill expected late Thursday or during Friday this week.

Despite the success of Wednesday’s vote, however, markets are anxious that the Republican’s slim majority, will result in the second failure of major legislative reform for the Party – especially considering how three GOP Senators have so far neglected to reveal their intentions.

If the vote is unsuccessful then the Australian Dollar will likely increase in demand, bolstered by a reduction in risk aversion.

If tax reform is successfully passed, however, then the AUD EUR exchange rate will likely remain in the Euro’s favour.

Beyond this, Australia’s AiG performance of manufacturing index is due for release tonight, a reading that could bolster the ‘Aussie’ Dollar if it proves positive.