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EUR/AUD: Risk environment to pressure the Aussie - Westpac

Sean Callow, research analyst at Westpac, suggests that for the Australian dollar, the narrative around the Australian economy has soured considerably this month, with the soft Q3 GDP growth and downward revisions reinforcing existing unease over the slide in house prices and tightening credit conditions.

Key Quotes

“We doubt RBA rate cut talk will gain much traction, with the unemployment rate at a 6 year low, non-mining investment plans improving, fiscal policy supportive and the RBA showing it is patient on wages and inflation. Also limiting downside on AUD versus EUR lately is the US dollar’s loss of yield support, with AUD higher beta than EUR on broad USD moves.”

“However, it is hard to see a major recovery in global risk sentiment in coming weeks. This argues for AUD underperformance given Australia’s sensitivity to global growth and EUR’s insulation from the Eurozone’s large current account surpluses.”

“During H1 2019, the euro should suffer as ECB tightening expectations are delayed but over year end, risks seem skewed for further AUD underperformance, back to EUR 0.6250 or AUD 1.60.”

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