AUD/EUR to grind higher towards 0.63 over Q4 – Westpac

AUD/EUR has been lively over the past month, sliding from the high 0.62s to below 0.6100 mid-August, rebounding to just short of 0.6300 early September and now consolidating around 0.62. Short-term, AUD/EUR probably drifts towards 0.6150. But over Q4, we could see the pair close to 0.6300, economists at Westpac report.

10-year AU-EU yield spread has offered useful guidance for AUD/EUR this year

“Last week the ECB’s keenly awaited policy meeting delivered something for everyone. The hawks wanted the pace of bond purchases under the pandemic program to be slowed and this was confirmed. But President Lagarde declared that, ‘the lady isn’t tapering,’ rather ‘recalibrating’ given that the pace was scaled up in March.” 

“The RBA delivered a mixed move on QE last week, tapering near-term but extending its next review of the pace by 3 months to Feb 2022. Neither CB is in the slightest hurry to lift their benchmark rate, leaving 2 year spreads drifting. But the 10 year yield spread has been a more helpful guide for AUD/EUR this year.”

“Short-term, AUD/EUR probably drifts down towards 0.6150. But over Q4, Australia should catch up to Europe on vaccination rates, producing periods of trade close to 0.6300.”