Westpac: Global Optimism Helps The Aussie

Westpac note that "after a multi-month period of range trading, AUD has trended steadily higher versus EUR since October 2020, reaching 2-year AUD highs/ EUR lows. Global growth expectations have been scaled up in recent months, with the US economy to find extra support from the Democrats' control of White House and Congress, Covid-19 vaccine rollouts under way and less severe damage to growth from renewed lockdowns in the northern winter. We expect the global economy to rebound sharply in H2 2021, a classic scenario for AUD outperformance. Broad US dollar weakness into early 2021 saw the euro reach highs since April 2018. But the ECB is uneasy about euro appreciation, with Eurozone core inflation stuck at a record low 0.2%yr in Q4 2020. The European Union's slow vaccine rollout is also a drag on the currency. Australia's economic recovery has faced far fewer interruptions. But with wages growth at record lows and ongoing border closures hammering services exports, the RBA rushed to announce a further $100bn in QE and a likely 0.1% cash rate until at least 2024. This stance should help keep a lid on AUD/EUR gains in coming weeks but targeting AUD/EUR 0.6550 or EUR/AUD 1.5250 in late 2021."