The Australian Dollar Euro exchange rate hit a near month low on Tuesday as the ‘Aussie’ was sold off on some dire GDP forecasts. AUD EUR later began to recover as traders sold the Euro however. It appears unlikely that AUD EUR will recover to Monday’s high of over 0.70.
Australian Dollar (AUD) Plunges as Traders Speculate Q3 GDP Contraction
While the Reserve Bank of Australia (RBA) didn’t seem hugely concerned about it in its Tuesday meeting, Australian markets spent most of the day selling off AUD amid concerns that Australia’s economy could contract towards the end of 2016.
In its final meeting of the year, the RBA indicated it was likely that growth would slow significantly towards the end of the year but did not indicate that this would lead to further stimulus.
As the final Q3 data for Australian economic activity trickled in, forecasters began to predict the possibility that Australia was in for its first Gross Domestic Product (GDP) contraction in five years.
This prompted an Australian Dollar to be sold off for most of Tuesday’s Asian and European sessions, but it avoided its worst daily levels later on due to weakness in the Euro.
Euro (EUR) Jitters Return Ahead of European Central Bank (ECB) Meeting
The Euro shed some of its worst downside factors this week as Austria voted against the protectionist Norbert Hofer and analysts perceived the Italian referendum’s ‘No’ result was not a significant threat to the Euro project.
However, as the US Dollar remained strong and Thursday’s European Central Bank (ECB) meeting drew nearer, the Euro’s strength was still significantly limited.
Investors widely expect the ECB to extend its aggressive easing policies in this week’s bank meeting, and this has been one of the biggest limitations behind Euro trade in recent weeks.
The Euro wasn’t even boosted by Tuesday’s final Q3 Eurozone Gross Domestic Product (GDP) result, which showed the bloc had growth of 1.7% year-on-year – more than the expected 1.6%.
Australian Dollar Euro Exchange Rate Forecast: Australian Growth and ECB in Focus
Will the Australian Dollar Euro exchange rate recover this week’s losses? That largely depends on the outcomes of Wednesday and Thursday’s anticipated events.
Wednesday’s Asian session will see the publication of Australia’s Q3 Gross Domestic Product (GDP) results. As previously mentioned, many forecasters now expect a quarterly contraction in this print, which has significantly weighed on ‘Aussie’ demand.
GDP is projected to slow from 0.5% to -0.1% quarter-on-quarter and from 3.3% to 2.2% year-on-year. If the final results are even lower than this, AUD EUR could easily hit new multi-week lows in the coming days.
However, the European Central Bank’s (ECB) December meeting will be held on Thursday and is potentially the most vital meeting to be held since officials introduced an aggressive stimulus package earlier in the year that included a significant expansion to quantitative easing.
Investors widely anticipate that the ECB will confirm that the stimulus package will be extended past its March 2017 end date until at least late-2017. This has been under speculation for months and has been a regular downside factor for the Euro.
As a result, the Euro could soar if the ECB unexpectedly decides to stay quiet on whether or not the stimulus will be extended.
At the time of writing, the Australian Dollar Euro exchange rate trended in the region of 0.69, while the Euro Australian Dollar exchange rate traded at around 1.44.