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.”
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