- AUD/JPY is trading in positive territory in the Asian session on Tuesday, up 0.22% on the day.
- The RBA decided to keep the OCR at 4.35% at its November meeting on Tuesday.
- The uncertainty of the US presidential elections could limit the rise of the cross.
The AUD/JPY cross gains traction near 100.40 during Asian trading hours on Tuesday. The Australian Dollar (AUD) rises following the Reserve Bank of Australia’s (RBA) interest rate decision.
The RBA held the Official Cash Rate (OCR) at 4.35% following the conclusion of its November monetary policy meeting. The decision was in line with market expectations. Australian Dollar holds firm after RBA rate decision.
According to the RBA’s Monetary Policy Statement, board members will continue to rely on upcoming data and the evolving assessment of risks. The policymaker further stated that monetary policy will need to be sufficiently restrictive until the central bank is confident that inflation is moving sustainably towards the target range.
Traders will take further clues from the RBA’s updated economic forecasts and Governor Michele Bullock’s press conference, which could offer some insight into the outlook for interest rates.
On the other hand, the uncertainty surrounding the US presidential elections could boost the safe haven currency such as the Japanese Yen (JPY) and limit the rise of the cross. Additionally, less dovish comments from BoJ Governor Kazuo Ueda could support the JPY in the near term. “Many market players had been betting that the next rate hike would come in the January-March quarter of next year. But it sounded like it left open the possibility of a hike in December,” said Hiroshi Watanabe, senior economist at Sony Financial. Group.
The RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages Australia’s monetary policy. Decisions are made by a Council of Governors in 11 meetings a year and in any ad hoc emergency meetings that are necessary. The RBA’s main mandate is to maintain price stability, which means an inflation rate of 2%-3%, but also “…contribute to currency stability, full employment and economic prosperity and well-being of the Australian people. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening monetary policy.
Although inflation has traditionally always been considered a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross-border capital controls. Moderately high inflation now tends to lead central banks to raise interest rates, which in turn has the effect of attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Australia is the Australian Dollar.
Macroeconomic data gauges the health of an economy and can impact the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contracting economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the AUD. A strong economy may encourage the Reserve Bank of Australia to raise interest rates, also supporting the AUD.
Quantitative Easing (QE) is a tool used in extreme situations in which lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) in order to purchase assets – typically government or corporate bonds – from financial institutions, providing them with much-needed liquidity. . QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is carried out after QE, when the economic recovery is underway and inflation begins to rise. While in QE the Reserve Bank of Australia (RBA) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets and stops reinvesting the maturing principal of the bonds. bonds you already own. It would be positive (or bullish) for the Australian Dollar.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
