AUD/EUR hit five-month lows in October, around 0.5950. It has since returned to around 0.6100. Both Reserve Bank of Australia (RBA) and European Central Bank (ECB) pursuing swift QE expansion but stark divergence in COVID-19 situation should help support AUD/EUR back towards 0.62 by year-end, economists at Westpac report.
Key quotes
“The Aussie is still down slightly against the euro year to date, having opened 2020 around 0.6250. This seems logical given the impact of the global recession on Australia’s open economy. But the clear outperformance of Asia-Pacific relative to Europe in containing covid should help support AUD/EUR into year-end.”
The Eurozone economy rebounded much more than expected in Q3, surging 12.7% (more than the US), cutting the annual decline to -4.3%. We see Australia’s annual GDP -5%yr in Q3. However, Australia’s very low virus cases are allowing restrictions to be loosened around the country, paving the way for a growth pick-up in Q4. In contrast, Europe’s second wave will choke the economy in Q4. This should prompt the ECB to boost its PEPP from an already massive €1.35 trillion at the Dec meeting. The RBA also erred on the dovish side at the Nov meeting, but is resistant to the ECB’s negative rate policy.”
“AUD/EUR should trend towards 0.6200 by year-end.”
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