Mario Draghi, president of the European Central Bank had an announcement on Saturday 4.30pm AEST.
During more recent announcements we have found that Draghi has begun to talk down the EUR, which has caused the AUD/EUR to appreciate. The reasoning behind his dovish words is that Draghi believes a weaker EUR is the key to a prosperous Euro-zone.
When a domestic country has a relatively weaker currency, the domestic country tends to experience a increase in their exports, as they become more competitive in the international markets. Also, with this effect, the domestic country typically finds that the Imports decrease as the international market becomes much more expensive than previous.
This appears to be Draghi’s plan; to balance off the economy and to help out the countries within the Eurozone that are struggling with their GDP, Trade Balance and Government Debt. The countries that are considered to be in trouble are Greece, Spain, Italy and France. These countries are in desperate need of the support that a weaker EUR brings.
Mario Draghi takes this problem very seriously. 3 months ago he created negative yielding Interest rate accounts. This was a historical day, as it told any potential investors if they wanted Euro’s, it would cost them! Since then we have seen the EUR/AUD fall dramatically; almost 4 cents in three months.
Needless to say, everyone was paying attention to Draghi’s announcement for insight about what monetary policies to expect moving forward and what new concerns, if any, he had for the Euro-Zone. It seems that Draghi wants unionised fiscal controls, as it is one of the key tools countries can use to control an economy and assist sovereign debt problems.
Investors were expecting a volatile start to the week; this came to fruition yesterday and should continue into the week. Meaning we should see a Stronger AUD/EUR by Friday.