EURAUD: Euro outperformance likely multi-month - Westpac

Sean Callow, Research Analyst at Westpac, notes that AUD has spent recent weeks range-bound versus the euro despite the equity recovery and an upswing in commodity prices.

Key Quotes

“We see AUD heading lower multi-month though there are enough near term risks for EUR/USD that AUD may yet squeeze to around EUR0.6450 or EUR/AUD 1.55 before resuming the AUD depreciation trend.”

“The EUR/USD surge from below 1.18 in Dec to above 1.25 in Jan and Feb was in large part due to a market focus on the ECB winding up its QE program in 2018, backed by stronger Eurozone growth. While we agree that the Eurozone economy is growing solidly (around 2%), underlying inflation remains subdued.”

“Political risk in Italy and Germany could also put pressure on long EUR spec positions, with scope for EUR/USD 1.20 multi-week. AUD could outperform in this phase.”

“But the longer term view is for AUD underperformance, as commodity prices slowly soften and the RBA holds steady in both 2018 and 2019.”