AUD outlook vs EUR: Ranging but volatility to increase - Westpac

Sean Callow, Research Analyst at Westpac, suggests that the US dollar’s stronger tone recently has had a similar impact on AUD/USD and EUR/USD, leaving the cross still hovering around the familiar AUD/EUR 0.68/ EUR/AUD 1.46-1.48 area.

Key Quotes

“We expect USD to remain well supported over the next month or so, keeping EUR/AUD volatility fairly low, even as movement picks up elsewhere (particularly AUD/USD).

The euro will continue to be supported by the Eurozone’s strong current account position and a sizeable overhang of spec positioning. Weighing on EUR/USD though will be yield spreads trending in USD’s favour and ECB QE that we don’t expect to be ‘tapered’ any time soon.

AUD’s positives include waning pricing for another RBA rate cut this year and commodity prices holding up much better than seemed likely a few months ago.

But AUD vulnerabilities include a potential pickup in global volatility from politics in both Europe and the US, plus the second-round effects of a rise in USD/Asia as markets prepare for an increasingly likely Dec Fed rate hike.

While AUD/EUR 0.68/ EUR/AUD 1.46-1.48 is still our one month view, risks are AUD/EUR 0.67 trades before 0.69, EUR/AUD 1.50 before 1.44.”