EURAUD trades under the 1.47 level and could gain some further ground on the downside with economic data released this week.
EURAUD 4 Hour Chart
Tuesday brings the release of Westpac Consumer Confidence before the Eurozone and German ZEW economic sentiment indexes. Thursday will bring employment figures for Australia, with predictions for a gain of 50k jobs.
The employment market is a big driver of monetary policy decisions by the Reserve Bank of Australia and some unemployment could see them hesitate on their rate hike path.
Westpac Bank’s Chief Economist, Bill Evans, thinks the RBA is deliberately trying to slow the economy to get inflation out of the system. That means households stop spending as their disposable income drops.
“The channels for flattening growth in demand include a very large negative wealth effect as house prices tumble, restricted growth in household disposable income as interest rates increase, record low consumer confidence, and increased borrowing costs for businesses,” Mr. Evans wrote.
“We think that the objective will be achieved by steadily increasing the cash rate to 3.35% by early 2023, with GDP growth eventually slowing to around 1% in 2023.”
The Australian dollar will benefit from the European Central Bank’s slower pace on rates, and sources close to the ECB were quoted with a 2% target for European rates to tame inflation. They added that the bank was bracing for a recession this winter and weaker growth next year than the ECB‘s own projection of 0.9%. However, a strong labour market is expected to cushion the economy from higher rates.
The Australian dollar was sold off as EURAUD reached highs near 1.49. The euro appears to have peaked at those levels, and with winter approaching in the Eurozone, this could be a good time to go short on EURAUD.