AUD/EUR set to trade at 0.62 by year-end – Westpac

Increased European Central Bank (ECB) grumbling about euro rise and rapid QE contrast with more cautious Reserve Bank of Australia (RBA) though a sustained break of 0.6200 could take some effort, according to economists at Westpac. The AUD/EUR pair has been thoroughly rangebound over the past three months, trading mostly 0.6050 to 0.6200.

Key quotes

“Officials are careful to insist that their concern is the inflation impact of a strong euro rather than trying to help exports. At last week’s meeting, President Lagarde played down EUR concerns but there is little breathing room on the inflation outlook, with ECB forecasting core inflation only at 1.1% by 2022.”

“The ECB balance sheet expansion remains rapid – see over, including EUR20 B per month that began pre-pandemic, a EUR120 B program agreed in March and the whopping EUR1350 B pandemic purchase program.”

“RBA balance sheet expansion is comparatively muted and the RBA views A$ appreciation as in line with the strength of commodity prices. Our AUD/EUR end-2020 forecast is 0.6200 but near-term we would not be surprised to see a period of trade nearer 0.6250.”