The Australian Dollar to Euro (AUD/EUR) Exchange Rate ralled 1.3% overnight reaching a high of 0.7110 after the announcement by the European Central Bank (ECB) for a stimulus program to commence from March this year until September 2016, emphasising that this would be continue if necessary.
Whilst there has been much speculation about the possibility of a stimulus program announcement at this ECB Interest Rate decision, the size of the bond buying program was much bigger than anticipated.
‘It’s all about the ECB today,’ said Jeff Kravetz, regional investment strategist at U.S. Bank Wealth Management. ‘This is a very positive development. They have a reputation of overpromising and under-delivering, and today they delivered.’
The ECB will buy in excess of One Trillion Euros in public and private sector bonds by September 2016 in the form of 50 Billion Euros every month, more than what the markets were expecting.
The ‘Aussie’ (AUD) along with other major’s rallied overnight against the Euro off the news of the ECB Stimulus package. Mark Dowding co-head of investment grade at Blue Bay Asset Management, made comment to Wall Street Journal that, ‘Although the reaction suggested investors had gotten what they wanted, longer-term effects on the economy look more uncertain. The jury is still out on whether this can really lift inflation expectations and economic growth.’
Tonight will provide the release of Flash PMI Manufacturing for both France and Germany. It is unlikely for these two usually higher tiered data releases to have a significant impact on the AUD/EUR Exchange rate as the markets are still focused on the ECB announcement.
The AUD/EUR Exchange Rate is currently Trading at 0.7049 at 8:30 AM AEST Today.
The Australian Dollar to US Dollar (AUD/USD) Exchange Rate Falls Below 80 US Cents
The Australian Dollar to US Dollar (AUD/USD) Exchange Rate lost over 1% during the offshore trading session and dropped below the 0.8 floor it has been testing since late last year falling to a low of 79.92 US Cents overnight.
Much of this can be attributed to market reactions from the ECB Announcement, in the US Unemployment claims were released for the week which were actually worst than the forecasted result coming in at 307K however an improvement on the previous week were the result was 317K.
Crude Oil pricing continues to suffer, it has fallen over 60% in the past 6 months and further indication of weaker demand was shown in the Crude Oil Inventories released out of the US overnight which showed a significant increase in the number of barrels of oil held in inventory as surplus increasing from 5.4M to 10.1M.
Global Inflationary Concerns Affecting the AUD Forecast
Crude Oil pricing has been in focus for many of the major markets in recent weeks, with the Bank of England (BoE), citing it as one of the primary reasons for the poor inflation figure seen out of the UK last week and globally causing inflationary concerns.
New Zealand released their quarterly Inflation figure Wednesday of this week which was lower than expected at -0.2%
The Bank of Canada highlighted crude oil pricing and it as one of the concerns leading to the shock Interest Rate cut seen this week. The Bank of Canada Stephen Poloz said. ’The drop in oil prices is unambiguously negative for the Canadian economy.’
Canada will release their monthly CPI figure tonight, Decembers release was a result of -0.2% and the expected result is -0.3% for tonight’s result.
Many economists are now speculating that The Reserve Bank of Australia (RBA) will need to cut interest rates at the first official Rate Decision meeting for the year on the first Tuesday of February.
Market Economics managing director Stephen Koukoulas said the RBA should be looking at Canada as a signal for Australia to cut rates stating ‘I wouldn’t say it’s urgent but if they don’t cut in February I don’t know what’s going on with them’.
Markets will be watching for the release of Australia’s Quarterly Figure which is due out next Wednesday as an indicator of whether the global inflationary weakness is impacting Australia.