AUD/EUR Outlook:
The AUD/EUR exchange rate is likely to increase as it is currently trading well above its recent average and nearing the upper limits of its 3-month range. A strong driver behind this trend is the recent surge in Australian inflation, which bolsters expectations for further interest rate hikes.
Key drivers:
• Rate gap: The Reserve Bank of Australia has raised rates, contrasting with the European Central Bank's steady approach amid economic uncertainty, benefiting the AUD.
• Risk/commodities: Strong oil prices are supporting AUD due to Australia’s commodity ties, while the elevated price levels also put pressure on the euro.
• One macro factor: Australia's inflation holding steady at a higher rate than expected continues to reinforce the need for potential RBA rate increases.
Range:
Expect the AUD/EUR to hold within the recent range but potentially drift upward as underlying factors remain favorable for the Australian dollar.
What could change it:
• Upside risk: A surprise announcement of further rate hikes by the RBA would bolster the AUD further.
• Downside risk: Weakening economic data from Australia could prompt profit-taking, affecting the AUD negatively.
