Euro to Australian Dollar Exchange Rate Advances despite Underwhelming Eurozone Confidence Results

While not significantly disappointing, Tuesday’s Australian inflation results from Q1 2018 were enough to help the Euro to Australian Dollar (EUR/AUD) exchange rate advance throughout the day. This was despite some disappointing business confidence stats from major Eurozone nations.

Low Reserve Bank of Australia (RBA) interest rate hike bets and underwhelming Australian data could cause EUR/AUD to see another week of gains. Last week, EUR/AUD climbed from 1.5882 to 1.6023, and this week the pair has touched on an April high of 1.6077.

The Euro may have seen even stronger gains against the Australian Dollar on Tuesday, had the latest Eurozone data been more impressive.

April business confidence stats from France, Italy and Germany were all published on Tuesday and most of the prints fell short of expectations.

French business confidence slipped from 110 to 109 and Italy’s business confidence figure came in short of 108.7 forecasts by sliding to just 107.7.

Ifo’s German business confidence survey results from April fell short in all major prints. Current conditions printed at 105.7 and expectations fell to 98.7. The key business climate figure fell from 103.3 to 102.1.

However, Euro trade may have been supported slightly by Italy’s April consumer confidence results, which only slipped from 117.5 to 117.1 rather than to the forecast 116.9.

The data followed Monday’s Eurozone PMI projections for April from Markit. The report beat expectations in many key prints, including German manufacturing and the Eurozone’s overall services and composite prints.

Overall, the data has had little effect on the Euro outlook. Euro traders are still anxious that the European Central Bank (ECB) may not tighten Eurozone monetary policy in the foreseeable future which has limited Euro demand.

Still, the ECB outlook may at least be more bullish than the Reserve Bank of Australia (RBA) outlook, which investors are concerned could leave Australian monetary policy frozen for even longer than previously thought.

While Tuesday’s Australian Consumer Price Index (CPI) report was not hugely surprising to more cautious analysts, the data still indicated to investors that there was little chance of a more hawkish RBA any time soon.

Australian inflation appeared to remain subdued. The quarter-on-quarter figure slipped from 0.6% to 0.4% while the yearly figure remained at 1.9% rather than climbing to the forecast 2%.

Some analysts noted that the data confirmed Australia’s economy was running below potential. The RBA’s recent cautious tone was seemingly justified by the inflation report.

However, some analysts noted that core inflation could actually be slightly above the RBA’s forecasts – but only slightly with other core measures weaker. Still though, the Australian Dollar’s weakness is limited and EUR/AUD gains so far this week are relatively narrow.

In fact, EUR/AUD could quickly shed its weekly gains so far if Thursday’s European Central Bank (ECB) policy decision is more cautious or dovish than markets expect.

The ECB is expected to leave monetary policy frozen and be relatively cautious on its monetary policy outlook during its April decision.

Any perceived shift on tone from the bank has the potential to influence Euro trade however. For example if the bank was more cautious than expected in regards to Eurozone inflation or interest rates, the Euro could weaken.

This could leave EUR/AUD weaker towards the end of the week, even if Australian Dollar weakness persists.

Still, even if ECB news disappoints on Thursday, the Euro could be boosted again on Friday if the day’s slew of notable Eurozone ecostats impresses investors.

Upcoming Australian data is unlikely to be particularly influential, but export and import data from Q1, due Thursday, could influence AUD trade.