The Australian Dollar has been particularly bearish at the start of 2011 and uncharacteristically so, due to the natural disaster that is the Queensland floods and whilst this continues it seems the AUD continues to struggle in general. The Euro also had a bad start to 2011 with speculation that Spain and Portugal were in a fairly imminent need of a bailout, but as these fears have now been allayed (at least in the short term) from Bond Sales – where is the currency pair headed throughout 2011?
The Davos summit came to a head this weekend with news, in particular for the Euro that has continued to buoy the Single Currency. For anyone that is unaware of the summit – it is the annual meeting of anyone and everyone who weighs in with any real say on the world economy, prime ministers, treasurers and heads of large banks and finance organisations.
But what is the main message coming out of the Summit? Well dispite many mixed messages (as you’d expect with so many huge ego’s trying to make politically enhancing statements), the most echoed statement from the Summit has been regarding the struggling Eurozone. With so many countries at risk in the zone and talk of a North / South divide as well as more stable economies (such as Germany) reported to be wanting away, the Euro had understandably struggled in early January. These concerns gained further credit when German Chancellor Angela Merkel dismissed a Euro bond out of hand, which would have increased stability to the Single Currency. So the bearish Euro faced turmoil square on and rates suffered as a result against the majority of major currencies.
However whilst the Euro’s prospects didn’t look great the floods continued to spread across Queensland, into Victoria and have showed little signs of completely subsiding. This meant that the Euro held ground as European(s) and Australian economies looked equally unattractive for investment. Interestingly as Australian inflation increased throughout January the Euro really began to pick up strength in the Short term as Sarkozy (the French PM) stated over the weekend: “Never will we turn our backs on the Euro. Never will we abandon the Euro.” Along with the bond sale and these messages of support have continued to make the Euro (seemingly at least) a more sustainable prospect. At the start of the year the AUD could buy 0.76585 Euros – which with the floods and Davos has now dropped to 0.72989, a difference of nearly 5%! This is a difference of over 7,000 Euros on a AUD 200,000 transfer!
Looking forward at the more medium / long term and putting my neck on the line I would expect the Euro to continue to gain against a bearish AUD in the next week or two. If you have a short term requirement to buy Euros from Australian Dollars perhaps it is best to look sooner rather than later, however if we are looking further into the long term the Australian economy remains stronger as a whole than the comibination of European economies (despite the floods), which has not escaped all it’s difficulties in my opinion. I could see the AUD / EUR rate ending the week at sub 0.72 levels but ending the year at 0.80 or better. If you have a requirement for AUD / EURs please feel free to contact me via email or phone and I will be more than happy to help you discuss what may impact your transfer.
