Euro Under Pressure From Further Political Upheaval, AUD Looses Ground
The French Election is in full swing, with far-right candidate Marine Le Pen the favourite to win with 27 per cent of the vote, Compared to 24 per cent given to Emmanuel Macron and 19 per cent to Francois Fillon. This is concerning for many global investors, namely Le Pen is pushing for a ‘Frexit’, relating to the fears of many over the issues surrounding the Eurozone’s immigration stance. Politics aside, if there was to be a European Union exit by France this would deal a devastating blow to the EU and the EUR.
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Adding further uncertainty to the future many of the European banks is Germany’s lack of support for a plan targeting bad debt throughout the financial system. EU Regulators have devised a plan to create a publically funded ‘Bad Bank’; its purpose would be to dispel the uncertainty surrounding the huge amounts of bad loans within many of Europe’s banks by determining their fair value and purchasing them. There are many issues with this plan however European financial regulators are running out of options fast and with many banks refusal to recognise the possible losses these bad loans could deliver this problem is not going away.
The market has responded to the political and economic risks within the EU; May 19 the EURAUD was trading at 1.5494, a steady decline in the EUR over the last nine months has left the EURAUD at 1.3964 earlier this week.
Mixed Economic Data causes Uncertainty, AUD Falls
The ‘Aussie’ has enjoyed a nine month rally against the Euro, EU uncertainty has helped, as has stronger commodity prices and solid economic data. However the AUD saw a recent decline against the EUR , partly due to unexpectedly poor trade balance figures and today as the RBA determines the cash rate going forward they are expected to leave the rate unchanged at 1.5%. Many analysts claiming a rate rise would reduce our already poor export figures which could hamper economic growth. As a result the AUD is expected to remain much the same following an RBA decision to keep the Cash Rate unchanged.
The AUD is currently trading at 0.7175 against the EUR