EUR/AUD: Westpac Assess The Outlook

Westpac note that “following the ECB’s February meeting, the Aussie printed lows against the euro since September 2021.”

• “While the ECB kept policy on hold, President Lagarde’s tone was notably different from December. She said there was “unanimous concern around the table of the Governing Council about inflation numbers” and declined to repeat the view that a 2022 rate hike was “highly unlikely.”
• “This stoked a stunning rise in EZ yields and a bounce in the euro. Expectations for tighter policy should remain elevated into the 10 March meeting. But QE seems sure to continue after March and even the sharp policy change implied in markets would leave the deposit rate in negative territory.”
• “The RBA tune has also changed but given its dual mandate, it is pushing back on the global push for rate hikes near term.”
• “With headline inflation yet to peak, policy hawks should remain ascendant into the March FOMC and ECB meetings. The RBA’s comparatively dovish rhetoric and jittery equity markets suggests A$ softness persists into March, with fresh lows since August 2021 quite possible. But by Q2, we expect AUD/EUR recovery to the EUR0.64-0.65 area (EUR/AUD retreating to A$1.54-1.56), as Australian growth accelerates into a likely August RBA rate rise.”