EURAUD: Near term AUD resilience - Westpac

Sean Callow, Research Analyst at Westpac, explains that AUD and EUR have followed a similar path in Q3 so far, posting >4% gains against a soft US dollar and this period of comparative stability followed the slide in AUD crosses in Q2, hurt by a sharp decline in key commodity prices.

Key Quotes

“These prices have of course risen substantially from their June lows, helping AUD/USD rally from around 0.74 to above 0.80.”

“But of course EUR/USD has rallied from under 1.12 in June to recent trade above 1.20, reaching highs since Jan 2015. Part of this is simply the US dollar’s struggles as inflation has softened and market hopes for a deal on taxes and infrastructure this year have faded.”

“The euro has also found support from the sustained Eurozone economic recovery, which the ECB has welcomed and gives it confidence that inflation will gradually move back towards target.”

“AUD has proven resilient against EUR in recent weeks and could yet probe AUD/EUR 0.69 or EUR/AUD 1.45 in October if the ECB errs on the cautious side on tapering QE. But eventually we see ranges breaking to the downside as cooler commodity prices chip away at AUD.”