Bias: The AED/EUR exchange rate is currently bullish-to-range-bound, as it sits just above the 90-day average and within the upper half of its 3-month range.
Key drivers:
- Rate gap: The Central Bank of the UAE maintains a Base Rate aligned with the US Federal Reserve’s, while the European Central Bank is expected to keep rates neutral in the near term, supporting the Dirham's strength against the Euro.
- Risk/commodities: Crude oil is trading above its average, benefiting the AED, as higher oil prices typically enhance the UAE's economic outlook.
- Eurozone economic indicators show subdued performance, especially after Germany's export contraction and slowing retail sales, which are dampening the Euro's strength.
Range: The AED/EUR rate is likely to hold steady or gradually drift within its recent range, testing extremes if oil prices remain volatile.
What could change it:
- Upside risk: A significant rebound in Eurozone economic growth could strengthen the Euro considerably.
- Downside risk: Continued geopolitical tensions in Europe could further pressure the Euro and negatively impact its value.
