RBA policy is more likely to produce movement in EUR/AUD in Q1 2020 – Westpac

Considering the range-bound momentum of EUR/AUD amid trade tussle between the United States (US) and China, coupled with turbulent global markets, analysts at Westpac anticipate further moves in 2020.

Key quotes

“The European Central Bank (ECB) monetary policy outlook is quite stable, with QE having only restarted in Nov and interest rates unlikely to be adjusted in coming months, as new President Lagarde provides continuity after the Draghi era.”

“We expect the Reserve Bank of Australia (RBA) to downgrade its Australian growth forecasts and deliver a rate cut to 0.5% in February, a prospect only about 60% priced in.”

“The Australia dollar (AUD) remains sensitive to US-China trade negotiations, where our base case is for markets to be disappointed but for talks to at least continue in the background into 2020. Brexit and EU-US trade relations are wild cards for the Euro (EUR).”

“Australia’s ongoing trade surpluses provide some insulation to AUD on crosses, but the focus into early 2020 is likely to be on Australia’s lopsided growth mix and renewed expectation of RBA easing.”

“This should see A$ weaken against the euro, below AUD/EUR 0.6100 or above EUR/AUD 1.6400, with downside A$ risks on any major market disappointment over US-China trade.”