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Sean Callow, Research Analyst at Westpac, points out that AUD trended lower against EUR from late August to early September, undermined by deepening US-China trade tensions and turmoil in Australian politics.

Key Quotes

“AUD has attempted a patchy recovery since then, with gradual recognition that US-China tariffs might not do much damage to Australian exporters, especially if China boosts infrastructure spending to offset the US tariff impact.”

“Indeed Australia’s commodity price basket is near 6 month highs, implying that AUD has been oversold on a range of crosses, especially with strong GDP data reinforcing the RBA’s view that the next move on rates is probably a hike.”

“In the euro’s favour however, the Eurozone’s huge current account surpluses provide insulation in periods of risk aversion. Moreover, EUR usually outperforms AUD when the US dollar makes broad gains.”

‘Overall, AUD should recapture some lost ground against the euro in coming weeks, with AUD/EUR 0.61 or EUR/AUD 1.64 remaining intact and scope for AUD gains to AUD/EUR 0.63 or EUR/AUD 1.59.”