The Australian Dollar Euro (AUD EUR) exchange rate plummeted on Thursday as markets responded to Australia’s monthly trade surplus narrowing sharply in October.
‘Aussie’ Trade Surplus Narrows, Australian Dollar (AUD) Exchange Rates Tumble
Australia trade surplus narrowed to 0.1 billion month-on-month in October, a drop of 93% from the previous surplus of 1.60 billion and far below the market forecast of 1.4 billion.
This marked the smallest trade surplus that Australia has recorded since April this year, with exports declining some 3% from a month earlier and imports rising by 2%.
A notable factor in the decline of exports was a large slump in iron ore sales, which dropped by 10% in October, and coal exports, which fell by 3%.
Capital Economics Analyst Paul Dales has asserted that there are signs of weakness in iron ore and coal exports going forward, claiming that the pollution control in China will likely further limit the ‘Aussie’ Dollar:
‘The pollution controls in China will presumably restrain the demand for Australia’s iron ore and the stronger dollar will continue to hit trade in services’.
With iron and coal being Australia’s biggest exports, and China being their biggest buyer, markets are indeed growing increasingly concerned that anti-pollution efforts within the region will curb prices.
This outlook and the massive decline in Australia’s trade surplus quickly weighed on demand for the ‘Aussie’ Dollar.
EUR Exchange Rates Climb Contrary to Disappointing Eurozone Ecostats
The Euro’s lead today is entirely at odds with some disappointing data releases from the bloc, with Germany’s industrial production figure for October proving poor and overall economic growth for the bloc remaining mostly muted.
Industrial production in Germany dropped by -1.4% month-on-month in October, down from the previous period’s -0.5% fall and well below the market forecast of a 2.2% climb.
This marked the biggest decline in Germany’s industrial output since December last year, with production falling almost entirely across the board.
Beyond this, the Eurozone’s economy only expanded at 0.6% quarter-on-quarter in the three months to September, in-line with market expectations but entirely stagnant.
Nonetheless, market demand for the Euro remained relatively high, with the majority of data this week having pointed towards an ongoing recovery.
In this sense the reaction to today’s two disappointing readings was only brief, with markets still having a great deal of faith in the Eurozone’s economic growth.
AUD EUR Forecast: Volatile Notable Ecostats on the Horizon
The Australian Dollar Euro exchange rate could become increasingly volatile tomorrow, depending on the result of pertinent data from both nations and an imminent speech tonight from European Central Bank (ECB) President Mario Draghi.
Germany’s trade balance figures for October will be revealed in the early hours – with a decline forecast from 24.1b to 21.9b – whilst Australian home loan readings will also be released, with markets expecting an increase from -2.3% to -2.0%.
If Germany’s trade surplus drastically shrinks then demand for the Euro will likely drop.
Draghi, on the other hand, is expected to deliver a speech as Chair of the Group of Governors and Heads of Supervision (GHOS) in a press conference.
Whilst it is unlikely that he will use the opportunity to discuss monetary policy, any sentiment revealed, good or bad, will be used by markets to assess the state of the ECB moving into 2018.