AUD vs EUR: Volatility favours EUR near term - Westpac

Sean Callow, Research Analyst at Westpac, notes that the ECB’s steady hand in September weighed on AUD against the euro both in terms of cooling market expectations for further easing steps and by adding to the unease in global bond markets.

Key Quotes

“Such episodes will take a greater toll on AUD than on EUR. Further ECB easing seems likely no later than early 2017, in contrast to the RBA. But over the next month or so, it is hard to see AUD/EUR making another run at the August highs above 0.6900 (EUR/AUD testing the August lows under 1.45).

An increase in global volatility around the FOMC and BoJ meetings and perhaps also heightened uncertainty in the final stretch of the US presidential campaign point to underperfomance of risk-sensitive AUD. The euro in contrast is supported by the Eurozone’s growing current account surplus.

AUD/EUR could dip towards 0.6550 (EUR/AUD could squeeze towards 1.52/1.53) if volatility increases sharply, but we would not chase such a move.

Looking toward year-end, we expect both AUD and EUR to weaken against the US dollar, with the Fed still on track to raise rates in Dec. Commodity prices should also keep a lid on AUD, but EUR is likely to be hampered by the prospect of further ECB easing.”