Recent analysis from Commerzbank highlights shifting dynamics in major currency pairs, with EUR/USD and AUD/USD both influenced by central bank expectations and inflationary pressures. For EUR/USD, the pair has nearly returned to pre-war levels, attributed to a combination of Euro resilience and US Dollar weakness, despite ongoing geopolitical risks such as the blocked Strait of Hormuz and elevated Brent crude prices above $100 per barrel [1]. Market participants anticipate the European Central Bank (ECB) will hike rates in June, bolstered by clear signals from the ECB President. However, Commerzbank's Thu Lan Nguyen expresses skepticism about market pricing for three hikes by year-end, citing economic burdens from the energy price shock and high debt levels, suggesting that only one hike is likely unless the Strait of Hormuz remains closed throughout the year [1]. Nguyen emphasizes that sustained EUR/USD upside should rely more on continued USD weakness rather than further Euro strength [1].
In contrast, AUD/USD held steady at 0.7200 last Friday and posted a 50-pip gain over the week, supported by market expectations of further Reserve Bank of Australia (RBA) tightening [2]. The overnight index swaps market is pricing in a 74% probability of a third consecutive 25 basis point hike to 4.35% at the upcoming RBA meeting, with a total of 64 basis points of tightening expected by year-end [2]. This outlook is driven by inflation remaining above the RBA's 2-3% target band, fueled by higher fuel costs and resilient domestic demand [2].
While both currency pairs are buoyed by central bank policy expectations, the underlying drivers differ: EUR/USD's movement is more closely tied to USD weakness and skepticism about aggressive ECB tightening, whereas AUD/USD is supported by persistent inflation and a market consensus for further RBA rate hikes [1][2].
No immediate market reactions or analyst opinions beyond these expectations are provided in the sources.
CONCLUSION
Commerzbank analysis indicates that EUR/USD's recent gains are primarily due to US Dollar weakness, with limited upside from ECB rate hikes, while AUD/USD is supported by expectations of further RBA tightening amid persistent inflation. Market participants should focus on central bank signals and inflation trends as key drivers for these currency pairs.