EUR/AUD weakens as traders look to ECB decision and guidance

Key points

The risk-sensitive Australian Dollar strengthened against the Euro on Thursday, as prospects that the global monetary policy tightening cycle could be nearing an end lifted market sentiment.

The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 5.25%-5.50% on Wednesday, in line with investor expectations.

Despite that Fed Chair Jerome Powell did not close the door to another rate increase in September, speculation emerged that July’s hike could be the last in the Fed’s tightening cycle, which drove the US Dollar lower against major peers.

Now, the European Central Bank moves in the spotlight, as it is largely expected to hike interest rates by 25 basis points at its policy meeting later in the day.

Investor focus will be set particularly on the ECB’s forward guidance for September.

“The market has been positioned for the ECB to hike in September,” Jane Foley, head of FX strategy at Rabobank, was quoted as saying by Reuters.

“If the probability of a September move is even slightly diminished relative to what the market had been expecting, the euro could be a little less robust.”

As of 9:12 GMT on Thursday EUR/AUD was edging down 0.34% to trade at 1.6345.

AUD/USD was last gaining 0.80% on the day to trade at 0.6811, after earlier hitting a one-week high of 0.6821.