Concerns about Lower Australia-China Trade Trigger AUD/EUR Exchange Rate Decline
The Australian Dollar has fallen by -0.3% against the Euro today, owing to speculation about a drying up of the trade stream between Australia and China.
The two countries have a long-established trading relationship, but there are worries that 2018 could see the trade link strained to the loss of the Australian economy.
One of the main issues is related to the Chinese government’s efforts to reduce air pollution, which is accomplished by temporarily closing steel manufacturing plants.
While this can improve air quality in China, it means reduced demand for iron ore from Australia, so AU exporters end up losing out.
Euro to Australian Dollar Rally Triggered by ECB Statement on QE
The Euro to Australian Dollar exchange rate has risen by 0.4% recently, following a surprisingly eventful European Central Bank (ECB) meeting.
The central bank implied that it could start to reconsider its extensive bond buying scheme, known as quantitative easing (QE). The key passage in the ECB’s minutes was;
‘The language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year’.
While hardly clear, this openness to a possible change in 2018 has brought widespread speculation that the ECB could taper off and potentially even wind down QE.
QE is considered ‘loose’ monetary policy, so traders are hoping for signs that ‘tighter’ policy in the form of interest rate hikes will be coming soon.
German GDP and Budget Growth Failed to Impress Euro Traders
While the Euro has gained ground on the latest ECB speculation, it didn’t appreciate earlier when seemingly positive German data came out.
German GDP growth increased from 1.9% to 2.2% in 2017, while the German government budget surplus rose by 1.2% during the year.
GDP growth was at a six-year high for Germany, while the new budget surplus was also a record-breaking figure.
Although this might have seemed like good news, Euro traders were disappointed with the GDP reading as it missed forecasts for 2.4% growth.
The budget growth reading also failed to make an impact, due to the German government not currently being in a state to make use of greater funds.
Coalition talks continue to drag on, with Angela Merkel’s CDU/CSU union and the SPD Party all trying to find common ground.
Australian Dollar to Euro Forecast: Will AUD/EUR Rate Rise on Jobs Data?
A pair of high-impact Australian data releases could influence the Australian Dollar next week, coming over Wednesday and Thursday.
First up is the Westpac consumer confidence score for January; if this shows growth then the Australian Dollar could appreciate.
Thursday’s data might be more high-impact, however, as it pertains to the unemployment rate and the reported change in employment during December.
Unemployment is tipped to remain static, but if employment grows significantly then the Australian Dollar could still appreciate.
AUD traders are concerned that the pace of wage growth is oppressively slow, so signs of higher employment could bring hopes of higher salaries from a smaller labour pool.
The next significant Eurozone news will come out on 17th January, consisting of inflation rate figures for December.
On the month, annual Eurozone inflation is tipped to slow from 1.5% to 1.4%; such a result could reduce demand for the Euro because of lower chances of ECB policy tightening.