Euro Slides Against Australian Dollar on Back of Eurozone Concerns

Alan Penny

18 July 2019

3 min read

EUR forex

Thursday saw the euro slide against the Australian dollar close to its lowest levels in two months. While the job market information out of Australia was mixed, concerns regarding the economic future of the Eurozone put significant pressure on the European currency.

Thus, the EUR/AUD was trading at 1.5946, which is close to its two-month low. The pair opened the week at 1.6054 and continued to exhibit a bearish trend.

However, it’s unlike the Australian dollar will see further gains as investors are still worried that the Reserve Bank of Australia will cut rates again.

Australian Dollar Strengthens Despite Mixed Jobs Results

Demand for the Australian dollar increased on Thursdays, even though the job market results weren’t quite what the market was hoping for.

Thus, the overall Australian economy added only 500 jobs, compared to forecasts of 9,000. However, it should be noted that this is mainly due to a decline in part-time jobs. Full-time job numbers increased significantly more than forecasts anticipated.

The unemployment rate held steady at 5.2%, as economists were expecting, while the participation rate remained unchanged at its record level of 66%, despite expectations of a small decline to 65.9%.

Though the data was mixed and is a clear indicator that the RBA still needs to make changes to effectively stimulate Australia’s economy, it still helped boost the Australian dollar.

Investors are taking the strong unemployment and participation rates as signs of the Australian economy’s resilience, which has increased their interest in the currency.

Investors Anxious Ahead of ECB Policy Decision

Next week, the European Central Bank will be holding a policy meeting, the results of which have investors feeling somewhat anxious. This is compounded by this week’s less-than-stellar economic results from the Eurozone, and a German economy that continues to display weakness.

Thus, investors aren’t certain regarding how dovish the European Central Bank’s stance will be, which means that they are holding in a waiting pattern.

This was made quite obvious yesterday when the Eurozone published an inflation report that was somewhat stronger than expected. The markets had little reaction and the euro remained flat.

The fact that the markets believe the ECB will reduce interest rates in a few months, along with rumors that the bank will be changing inflation objectives, has only put further pressure on the European currency.

EUR/AUD Likely to Remain Flat Until ECB Meeting

The euro is unlikely to see much activity over the next few days as investors don’t seem to want to make any significant moves until the European Central Bank announces its policy decision.

The only two factors that could move the rate before that would be if bets increase over potential RBA cuts and any unexpected data out of the Eurozone.

Euro Flat Against U.S. Dollar Despite Poor U.S. Data

The euro was unable to gain any ground against the U.S. dollar, despite the fact that June’s U.S. housing figures weren’t on par with expectations.

Thus, the number of new projects to start work came in at 1.253 million versus market expectations of 1.26 million. Housing permits came in at 1.22 million, which was below expectations but also lower than May’s 1.299 million.

Even though these figures clearly created concerns in U.S. markets, it wasn’t enough to boost the EUR/USD exchange rate. Even concerns over the Federal Reserve cutting interest rates couldn’t help the euro.

However, if today’s U.S. job data comes in above expectations, then it’s quite likely the euro will actually slide against the U.S. dollar. This is even more likely if the U.S. Philadelphia Fed Manufacturing Survey results show improvement as expected.

Written By
Alan Penny

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