AUD and EUR in the limelight - Westpac

Sean Callow, Research Analyst at Westpac, suggests that the past week has not been one for the record books for either the Aussie dollar or the euro.

Key Quotes

“AUD/USD seems reluctant to give up the 0.76 handle, while EUR/USD seems remarkably fond of the 1.12 area. As the chart across shows, 1 month actual EUR/USD volatility is close to the lows for the year (near 6% annualized) when we include intra-day movement. If we look at actual EUR volatility using daily closes, it plunges below 4%, easily the lowest over the past year.

This was despite some lively price action at times this week, notably in response to a surprise story claiming the ECB had agreed to an informal plan on how to ‘taper’ its QE program. Such source stories are best approached with some caution but the basic idea of reducing QE from its current EUR80bn pace in $10bn monthly increments is reasonable. The huge question is when will this take place? It is hard to see the Eurozone inflation outlook improving sufficiently to warrant tapering starting from the current Mar 2017 expiration of QE. An extension of the program still seems more likely than tapering as the ECB’s next key move.”