AUD to extend recovery against the EUR – Westpac

Sean Callow, Research Analyst at Westpac, explains that the AUD underperformed many currencies from late August to mid-September, as the Aussie appeared to suffer a political risk premium on the Canberra leadership change and the US-China trade war deepened with a new wave of tariffs.

Key Quotes

“AUD price action has been more constructive in recent weeks, the Aussie showing resilience to global equity turbulence. Moreover, multi-month highs for Australia’s commodity export price basket – led by iron ore and coal – implied less damage from trade wars than feared, at least in the short term.”

“Meanwhile, the euro was undermined in October by the selloff in Italian bonds as the new government proposed a looser budget than the EC demanded.”

“In coming weeks, rather than Italy, the bigger question for EUR is likely to be whether the Eurozone economic slowdown continues.”

“Our Eurozone data pulse is below 30% versus 52% over 2017, while Q3 GDP growth of 0.2% was the weakest since 2014.”

“This focus on Eurozone data into the Dec ECB meeting contrasts to the RBA’s plausible projection of Australian GDP growth remaining above 3% into 2019. This should help AUD extend its recovery against the euro multi-week to AUD/EUR 0.6325/50 or EUR/AUD 1.5750/1.5800.”