EURAUD: Yield support could wane - Westpac

Sean Callow, Research Analyst at Westpac, notes that the euro was the strongest G10 currency in November, with much discussion of the ECB winding up its QE program in 2018, backed by stronger Eurozone growth.

Key Quotes

“While we agree that the Eurozone economy is growing solidly (around 2%), underlying inflation is running at just 0.9%yr. This could see ECB president Draghi at the 25 January meeting push back on talk of reducing monetary stimulus, hurting the euro.”

“AUD meanwhile has found support from a commodity price rally over year-end. But bulk commodity supply growth should cool prices in coming months. Moreover, market pricing of 90-100% chance of the RBA raising rates by end-2018 could slip back if Australia’s Q4 CPI data (31 January) is on the soft side.”

“Given these downside risks on both EUR/USD and AUD/USD multi-week, the cross may struggle for strong direction in coming weeks, trading mostly the 0.65 handle on AUD/EUR or either side of EUR/AUD 1.54.”