AUD/EUR: ECB reaction overdone? - Westpac

Sean Callow, Research Analyst at Westpac, suggests that after AUD made substantial gains against EUR from early May to early June, price action has since been very mixed, with the euro recovering on the formation of the new Italian government and especially on anticipation of the ECB’s review of its asset purchases at the 14 June meeting.

Key Quotes

“The euro of course tumbled as the ECB revealed a cautious plan to reduce stimulus. But AUD didn’t perform much better, struggling against a US dollar underpinned by Fed hawkishness.”

“AUD’s domestic story should be broadly neutral in coming weeks, with Q2 growth likely softer than Q1 but the RBA’s willingness to hold policy steady very clear.”

“The euro’s slide on the ECB meeting is arguably overdone and EUR remains supported by a strong current account surplus which will help if trade tensions grow. This suggests multi-week risks tilt more towards AUD/EUR 0.64, EUR/AUD 1.56 than to 0.65 or 1.53/1.54.”