AUD Lurches higher as risk sentiment improves

Key Movers

The USD fell through trade on Tuesday, broadly weaker as market appetite for risk improved and the Euro maintained its recent upward momentum. Reports the ECB will consider a 50-basis point rate hike later this week fueled price action across rates markets. The ECB has previously signaled it will only consider a 25-point hike and a measured approach to monetary policy tightening. The reports lifted short term European bond rates with 2-year German bonds up 12 basis points to a 3-week high. Signals the ECB is considering a more aggressive approach to monetary policy normalisation coupled with measures to support periphery bond markets have helped lift the Euro comfortably back above parity. Having broken above 1.02 the Euro found added support in reports Gazprom will reinstate the flow of gas through the Nord Stream 1 pipeline as planned. While gas flow is still expected to be at a reduced capacity, ensuring Gas prices remain elevated the threat of a collapse in Europe’s Energy market has at least been avoided for now. Having touched intraday highs at 1.0267 the Euro has edged lower into this morning’s open and currently buys 1.0230.

In other news the GBP underperformed, as markets showed little reaction to commentary from Bank of England Governor Mark Bailey. Bailey flagged a 50-basis point rate hike in a bid to control near term price pressures, but with inflation risks already elevated the market has previously priced in this scenario, limiting GBP upside.

Our attentions remain affixed to the weeks key risk events in guiding an extended risk appetite recovery.