When Australian officials recently concluded that domestic interest rates should rise, they discussed at length the disturbances in financial markets that were washing up on Australia's coast. Concerns were clearly rising as a result of wayward fiscal policies within certain European nations. Today's minutes revealed quite accurately that the chances were good that the risks arising from those disturbances might escalate, while the timing and length of the recovery process was highly uncertain. The insight into the way the RBA processes information coincides with an announcement from EU ministers that it is merely clamping down on rogue nations rather than those deemed fiscally fit. That news has today helped lift the euro from the depths of despair.

Aussie dollar - The Aussie dollar fell upon the immediate delivery of the RBA's policy minutes. At the meeting the central bank raised the short-term benchmark rate of interest for a sixth time to 4.5%. The minutes reveal that the central bank was impressed with its timeliness in shifting monetary policy and that it also felt that the impact was starting to become evident in consumer and homebuyers behavior. The impact today was to dampen any enthusiasm for future interest rate increases, which deterred more buyers from rallying around the Aussie unit. The Aussie declined against the dollar to 87.03 U.S. cents and narrowly holding above a three-month low for the unit reached on Monday. But a recovery in the fortunes of the euro has helped underpin a rally for the Aussie to 87.51 by early morning trading in New York.

Euro - The euro recovered this morning after the conclusion of a seven-hour meeting of EU officials in Brussels. Sentiment had weakened further in recent days as a groundswell of opinion gathered fearing that Eurozone wide fiscal retrenchment would unleash a second wave of global recession. Tuesday's weakness was confined to $1.2316 following a rough start to the week that sort the euro reach a four-year low at $1.2235. But following comments from Ollie Rehn, the EU Economic and Monetary Affairs Commissioner, the euro has recovered to an intraday peak at $1.2445. He said that while high-deficit nations would be ordered to cut spending, the policy was not Euro-region wide and wouldn't affect nations in better shape. Investors are perhaps sensing that the entire Eurozone will not now be hampered by any additional spending cuts. This is a significant change in sentiment even though the fear became self-fulfilling as the crisis grew. Sure, European fiscal policy needs coordinating yet no one ever stated in black-and-white that reformation would start today with a plunge into the deep end of the pool.

Greece also received its first installment of emergency funds from the EU on Tuesday, which means it can repay maturing loans of €8.5 billion due Wednesday without having to face the boiling pot of the market place.

British pound - The Bank of England was forced to write its seventh letter to the Chancellor of the Exchequer after consumer prices remained outside of the target range. The Office of National Statistics said that April consumer prices rose by 0.6% during the month and by 3.7% over the course of the year. The core rate stripping out the volatile food and energy components rose at an annual pace of 3.1%.

The pound is lower on the day versus the dollar and buys $1.4456, while it is also weaker per euro at 88.83 pence. In his letter to the new Chancellor, Bank Governor Mervyn King downplayed the highest pace of consumer prices since November 2008 and said that the rise was temporary and masked plenty of spare economic capacity. The Bank recently said in its quarterly inflation forecast that the pace and extent of future declines in the pace of inflationary pressures are highly uncertain. We stand ready to expand or reduce the extent of monetary stimulus as needed, said the forecast.

Food price inflation along with a rise in the cost of women's clothing were behind the rise in the April cost of living. Tax rises on alcohol and tobacco were also to blame.

U.S. Dollar - The broader decline in fear in today's market means that the dollar is slightly less wanted. A surprisingly strong pace of new home construction failed to boost the dollar although let it be said that weakness in housing permits - a forward looking measure of activity in the construction business - is probably offsetting any desire to hold dollars today. Meanwhile core producer prices remained muted. Today the dollar index is lower by 0.1%.

Canadian dollar - Canada's dollar is feeling a little less nervous today. It reached its extreme weakness on Friday, which provided support on Monday when crude oil prices reached the weakest since December. Commodity prices are a big driver for the Canadian unit, which also has the prospect of a string of yield-improving interest rate increases ahead of it during 2010. Today the Canadian dollar buys 97.30 U.S. cents from 96.60 cents on Monday.

Japanese yen -A recovery in European stock prices helped reduce demand for the safety of the Japanese yen today. The dollar rose to ¥92.81, while the euro recovered to ¥115.12 and the Aussie increased to ¥81.18. The yen is barely weaker against a struggling British pound at ¥134.00.

Andrew Wilkinson Senior Market Analyst