Debabrata DasWhat has been driving the EUR/AUD pair’s rate in 2021 and what is its outlook as we head into 2022? We answer these questions through the latest analysts’ predictions and look at what to consider when trading the EUR versus the AUD.
EUR/AUD: where is the pair now?
The EUR/AUD news through 2021 was a story of stability. After slipping to 1.52 in late February 2021 – following the Aussie gaining momentum from signs of a quick recovery post Covid-19 – the Delta variant slowly started spreading across Australia, so the EUR strengthened and the EUR/AUD pair peaked at around 1.63 in August 2021.
As can be seen, however, the currency pair has largely been stable within the 1.55 to 1.65 range. As the world grapples with an energy crisis, Australia, a key energy exporter, has seen its currency strengthen and the pair is currently at 1.56 as of 14 October 2021.
EUR/AUD technical analysis
The current market sentiment for the EUR/AUD pair is one that reflects confidence in Europe’s steady recovery from the Covid-19 pandemic versus the fundamental risks within the Australian economy, where a contraction of the gross domestic product (GDP) is expected in the third quarter of 2021.
At the time of writing, data from Capital.com shows trader sentiment at 85% bullish and 15% bearish. The data is calculated automatically, based on open positions for EUR/AUD on the platform and should not be considered an incentive to trade the asset.
Analysts at Citibank see short-term support for the EUR/AUD at 1.5692, suggesting that the currency pair is closer to its floor rather than the ceiling.
The euro to the Australian dollar forecast for the short-term will likely be driven by how the energy crisis evolves in Europe and whether Australian commodity exports can benefit from the global energy shortage.
Though, Citibank analysts expect support for the pair at its current levels, they remain technically bearish on the EUR versus commodity currencies like the Aussie dollar.
EUR/AUD forecast: key fundamental drivers
Australia is one of the major commodity exporting countries. As a result, its currency is closely linked to both energy prices and commodity prices. Given that a lot of its commodity exports go to China, the economic health of China also plays a key role in determining the value of the Aussie.
It is also a riskier currency, given the swings that commodity and energy prices tend to witness, and typically does well in a risk-on environment when the global economy has a positive outlook.
However, the AUD is seeing strength against many major crosses of late, largely because of the battering it took during August and early September as well as the energy shortage around the world, which has raised expectations for Australian exports to benefit.
Unlike other major Asian currencies versus the Aussie dollar, interest rates play a major part in the movement of the EUR/AUD exchange rate. Therefore, the European Central Bank (ECB) is closely watched while determining where the exchange rate moves.
Euro to AUD forecast: what are the analysts saying?
The long-term EUR/AUD prediction is bearish according to the latest ING report. Though the analysts do expect the exchange rate to appreciate by the end of 2021, they forecast the EUR/AUD to slip to 1.48 a year from now.
Despite such expectations, the AUD has outperformed as the economy reopens and energy prices rise according to National Australia Bank (NAB).
“Energy prices are acting to support Australia’s terms of trade, as well as potentially pushing back green initiatives, the [environmental, social, governance] ESG push had been sighted by some analysts for why commodity currencies had underperformed over recent months – though this is likely to have been marginal in your scribe’s opinion,” NAB analysts said in a note.
“Also adding to the AUD’s favour are reports of China unloading Australian coal that had been stranded. Coal supply in China has become increasingly tight and yesterday [11 October] coal futures in China jumped over 10%, to a new record, after reports that heavy flooding in the Shanxi province had knocked out 60 of the 682 coal mines in the region (which accounts for around 30% of the country’s supply),” the note added.
NAB analysts also observed that other commodity prices have also held up relatively well, despite ongoing worries over China’s property sector. “Copper prices were up almost 2% overnight while iron ore futures gained 3.5%,” the note stated.
Energy prices are being seen as the outlier, which is why the Aussie dollar has gained in recent weeks despite other fundamentals acting against the currency.
“The eurozone’s current account surplus was a solid 2.7% of GDP in the second quarter of 2021. This is fairly typical for recent years,” wrote Sean Callow, senior currency strategist at Westpac, in a note. “Far more unusual is the scale of Australia’s own current account surpluses, which Westpac expects to rise from 2.7% of GDP in 2020 to 4.3% in 2021. Australia’s trade surpluses have averaged a hefty AUD8bn a month over the 12 months to July 2021. This is not all good news for AUD, however. The surge in iron ore prices is unwinding, services exports remain hammered by border restrictions and soft imports imply weakness in domestic demand. Lower surpluses seem likely in the year ahead. However, this is still unusually supportive of AUD on crosses.”
Callow added:
It was also noted by Callow that short positioning looks to be “positive for the AUD” as compared with the EUR, given “real money’s huge net long EUR positions” and “substantial net short AUD positions” for both leveraged and institutional accounts.
When looking for EUR/AUD predictions, it is important to bear in mind that analysts’ forecasts can be wrong. Analysts’ projections are based on making a fundamental and technical study of the currency pair’s performance. However, past performance is not a guarantee of future results.
Do your own research and always remember your decision to trade depends on your attitude to risk, your expertise in this market, the spread of your investment portfolio and how comfortable you feel about losing money. Never invest more than you can afford to lose.
Key facts about EUR/AUD pair
The euro (EUR) to Australian dollar (AUD) exchange rate shows how many AUD are needed to buy one EUR. Known popularly as the Aussie dollar, the Australian dollar is the official currency of the Commonwealth of Australia. It is the fifth most traded currency in the world even though its GDP is the 12th largest in the world.
The euro is the official currency for 19 of the 27 European member countries. The currency was introduced in 2002, after a preparatory period of 40 years. The European Central bank and the European Commission are responsible for maintaining its value and stability. It is also the second most-traded currency, accounting for 32.2% of all forex transactions, after the US dollar (USD).
