Markets Prepare for Looming US Fed Rate Decision – AUD/EUR Exchange Rate Proves Surprisingly Upbeat
The Australian Dollar to Euro (AUD/EUR) exchange rate climbed on Tuesday, seemingly unperturbed by diminishing risk appetite amongst the markets and tomorrow’s looming US Federal Reserve rate decision.
Markets are currently preparing for the likelihood that the US will raise its benchmark interest rate tomorrow, with the speedy acceleration of the US economy likely to foster a prompt response from members of the Federal Open Market Committee (FOMC) in order to avoid potential overheating.
With this pretty much priced in, the forward guidance of the bank could be of greater of interest to investors, with any indication of 4 rate hikes this year rather than 3 liable to underline massive optimism for the US economy and send the ‘Greenback’ surging.
This would, in turn, siphon demand away from the riskier commodity currencies like the Australian Dollar, thus potentially driving AUD/EUR lower.
Despite this outlook the ‘Aussie’ Dollar proved resilient against the Euro on Tuesday, supported perhaps by a run of disappointing data releases from the bloc itself.
ZEW Economic Assessments for the EU Disappoint – EUR Exchange Rates Fall
The Euro struggled to find support on Tuesday, limited by a range of disappointing ecostats from the bloc.
According to the Mannheim-based ZEW research institute, the mood among German investors worsened in March, with Germany’s economic sentiment reading plummeting to 5.1 this month, down from the previous print of 17.8 and the forecast of 13.1.
A separate gauge for the bloc itself also disappointed, falling to 13.4, in March, down from 29.3 in February.
ZEW titled this release ‘Economic Outlook Worsens Considerably’ and cited concerns that escalating tensions in global trade could severely hamper the bloc’s economic outlook.
ZEW President Professor Achim Wambach reflected this outlook, claiming:
‘…concerns of a US-led global trade conflict have made the experts more cautious in their prognoses. The strong Euro is also hampering the economic outlook for Germany, a nation reliant on exports’.
Indeed, given the EU’s extensive tariffs on a wide range of US goods it is possible that they too could come under fire as US President Donald Trump moves to address the US trade deficit with various global powers.
Australian Dollar Euro (AUD/EUR) Exchange Rate Forecast: Australian Labour Market Figures in the Spotlight
After tomorrow’s US Fed rate decision has passed, the market focus will eventual shift to Thursday’s Australian labour market statistics, with the unemployment rate expected to take centre stage.
Markets are currently expecting unemployment to remain steady at 5.5% in February, consistent with the previous period.
The overall employment change figure is expected to shift from 20k to 16k.
It should be stressed that an unemployment rate of 5.5% would still be uncomfortably high for the Reserve Bank of Australia (RBA), however, with analysts asserting that it would have to fall by another 1.5% before a meaning rise in wages.
This is pertinent in that without accelerating wage growth the RBA is not likely to move for a rate hike anytime soon, potentially risking a greater drop in demand for the ‘Aussie’ Dollar.