So far in Q3, the Aussie’s performance has been quite mixed, with the euro among the G10 currencies gaining on A$. The EUR/AUD pair is trading near 1.65 and economists at Westpac forecast the cross at 1.67 by September.
“Euro outperformance appears to be at least partly inspired by the July agreement on the EU Recovery Fund, with the ‘frugal’ minority willing to compromise with the majority who notably were led by Germany. The EU is keen to talk up the scale of the fiscal support compared to the US and China, though ratification will take months.”
“Europe’s Covid-19 trends are mostly encouraging, allowing for some resumption of travel. Australia’s economic recovery, in contrast, will be slowed notably by the Victorian virus resurgence and resultant Stage 4 restrictions.”
“We assume that the optimism over European cooperation persists for now, leaving EUR/AUD trending towards 1.67 by September, but with the Aussie then grinding higher in Q4 and in 2021.”