Westpac: Extreme Covid Divergence

Westpac note that "the Aussie is still down slightly against the euro year to date. This seems logical given the impact of the global recession on Australia's open economy. But the clear outperformance of Asia-Pacific relative to Europe in containing Covid-19 should help support AUD outperform into year-end. The Eurozone economy rebounded much more than expected in Q3, surging 12.6% (faster than the US), cutting the annual decline to -4.4%. We see Australia's annual GDP -5%yr in Q3. However, Australia's very low virus cases are allowing restrictions to be loosened around the country, paving the way for a growth pick-up in Q4. In contrast, Europe's second wave will choke the economy in Q4. This should prompt the ECB to boost its PEPP from an already massive EUR1.35 trillion at the Dec meeting. The RBA also loosened policy at the Nov meeting, but is resistant to the ECB's negative rate policy. The pair should trend towards AUD/EUR 0.6300 or EUR/AUD 1.58 by year-end."