- The recovery of the Australian dollar stagnates below 0.6545, with low -limited attempts above 0.6500.
- A somewhat more optimistic market tone has weighed over the US dollar, safe refuge, this Wednesday.
- The RBA hard line monetary policy decision promoted the Australian dollar on Tuesday.
The Australian dollar is registering marginal losses on Wednesday, operating within Tuesday’s range, since the positive impact of the RBA hard line statement has vanished, and investors are changing their approach to the publication of FOMC minutes.
The average risk feeling observed in previous days, after Trump’s announcement about the first batch of tariff cards, seems to have decreased this Wednesday, since the new deadline of August 1 keeps some hopes of a significant progress alive. This most optimistic feeling is supporting the Australian dollar and weighing on the USD, safe refuge.
The Australian dollar shot on Tuesday after the Bank of the Australian reserve surprised the markets by maintaining their reference interest rate without changes in 3.85%, against the market expectations of a 25 basic points cut to 3.6%.
However, the PAR is still unable to break over an earlier support, now converted into resistance in the area of ​​0.6545 after a drop of almost 1.5% last week, since Trump’s threat of a new round of rates affected the confidence of investors in the economy oriented to Australia’s trade.
Today, the attention is focused on the minutes of the June FED meeting, which is expected to provide more information about the short -term decisions of the bank and some additional orientation for the US dollar crosses.
RBA – Frequently Questions
The Bank of the Australian Reserve (RBA) sets interest rates and manages Australia’s monetary policy. The decisions are made by a advice of governors in 11 meetings per year and in the necessary emergency meetings that are necessary. The main mandate of the RBA is to maintain price stability, which means an inflation rate of 2%-3%, but also “… contribute to the stability of currency, full employment and economic prosperity and the 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 are the quantitative relaxation and hardening of monetary policy.
Although traditionally it has always been considered that inflation is 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 take the central banks to raise their interest rates, which in turn has the effect of attracting more capital of world investors who are looking for a lucrative place to keep their money. This increases the demand for the local currency, which in the case of Australia is the Australian dollar.
Macroeconomic data calibrates the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contraction 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 surveys about consumer feeling can influence the AUD. A strong economy can encourage the Bank of the Australian Reserve to raise interest rates, also supporting the Aud.
The quantitative easing (QE) is a tool used in extreme situations in which to lower interest rates is not enough to restore credit flow in the economy. The QE is the process by which the Bank of the Australian Reserve (RBA) prints Australian dollars (AUD) in order to buy assets – normally State or business bonds – to financial institutions, thus providing them with the liquidity they need so much. The one usually translates into a weaker audience.
The quantitative hardening (QT) is the reverse of the QE. It is carried out after the QE, when economic recovery is underway and inflation begins to increase. While in the QE the Bank of the Australian Reserve (RBA) buys state and business bonds from financial institutions to provide liquidity, in QT the RBA stops buying more active and stops reinvesting the main one that expires of the bonds it already has. 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.
