Recent analysis by ING’s Francesco Pesole highlights that both the Euro and the Australian Dollar are under pressure as markets prioritize central bank dynamics and growth outlooks over other factors such as commodity prices. For the Euro, EUR/USD has returned to Friday’s levels, with the two-year EUR:USD swap rate differential maintaining a widening bias around the pre-war 110-115 basis points area. Despite this, weaker Eurozone growth and a less dovish Federal Reserve are limiting bullish positioning on the Euro. ING sees continued downside risks for EUR/USD, which could fall below 1.150 if concerns about deal sustainability resurface, if there are delays in the reopening of Hormuz, or if US-Eurozone data divergence widens further [1].
In Australia, the Reserve Bank of Australia (RBA) delivered a hawkish hold, emphasizing that inflation remains too high and that further rate hikes are possible. However, markets reacted negatively, focusing instead on softer Australian growth data. This led to a decline in short-term swap rates and the Australian Dollar, illustrating that markets now require a higher threshold for hawkish central bank communication to support their respective currencies [2].
Both cases underscore the current market environment where growth concerns and central bank policy divergence are the dominant themes. For the Euro, the combination of a wider swap differential and weak growth is preventing a bullish outlook, while for the Australian Dollar, even explicit hawkish signals from the RBA failed to offset the impact of disappointing growth figures [1][2].
Forward-looking statements from ING suggest that downside risks remain for EUR/USD, particularly if negative developments occur regarding deal sustainability, the reopening of Hormuz, or if economic data continues to diverge between the US and Eurozone [1]. For the Australian Dollar, the implication is that further hawkish signals from the RBA may not be sufficient to support the currency unless accompanied by stronger growth data [2].
CONCLUSION
Both the Euro and Australian Dollar are facing downside pressure as markets focus on growth concerns and central bank policy divergence. ING highlights that, despite hawkish signals from central banks, weak growth data is limiting currency support. The market takeaway is that stronger economic fundamentals are now required to drive bullish sentiment for these currencies.