The Australian dollar has gained about 9 per cent against the euro since the start of 2014.

The Australian dollar has gained about 9 per cent against the euro since the start of 2014. Photo: Bloomberg

Economic stagnation, high unemployment, the threat of deflation and tensions with Russia have battered Europe's common currency in recent weeks, driving it to a year-to-date low against the Australian dollar.

In late local trade on Monday, as French Prime Minister Manuel Valls announced the resignation of his government, the Aussie was buying 70.6 euro cents, compared with around 70.2 euro cents late on Friday.

The local unit has gained nearly 9 per cent on the euro since the beginning of the year, when it was fetching about 65 euro cents.

The common currency has also fallen against the US dollar, although not as dramatically: on Monday the greenback was buying about 75.7 euro cents, against 75.5 late on Friday and 72.7 at the beginning of the year.

Investors have been selling the euro and euro-denominated assets since the first week of August, when official figures revealed a June quarter contraction in the core economies of Germany and France, and confirmed Italy's third recession in six years.

Until then, the currency had support from investors snapping up cheap shares and relatively high-yielding asset-backed bonds issued by banks to free up their balance sheets.

These have sold off in recent weeks, while the European Central Bank (ECB) is now mulling a US-style asset-buying program, known as quantitative easing, to complement sub-zero real interest rates and help channel bank lending to small companies and households to build desperately needed aggregate demand.

ECB president Mario Draghi, who promised two years ago that the central bank would do "whatever it takes" to stop the eurozone unravelling, told delegates to the US Federal Reserve's Jackson Hole symposium at the weekend that members states would have to speed up structural reform and move more quickly towards fiscal harmony.

Any further action by the ECB could drive the euro even lower, while Mr Draghi's obvious frustration at the limits to monetary policy has also served to "jawbone" the currency over the weekend.

Although not a panacea for the eurozone's multiple woes, a weaker euro should at least help exporters, according to some economists.

This is particularly true of the so-called peripheral economies of Greece, Portugal, Spain and Ireland, whose recovery, although strong off a very low base, has been stymied by the high euro..

"The problem has been the ability of some of these peripheral countries to try and internally devalue by getting their prices down and becoming much more competitive," said Tyndall Investment Management's head of fixed income Roger Bridges.

"This was being made worse by the fact that the euro kept on climbing.

"So one of the benefits of the recent uncertainty has been the decline in the euro," he said.