- The Australian dollar recovers lost land and approaches the annual maximums at 0.6595.
- A hard line rba and the hopes of more stimuli in China are supporting Aussie.
- Une.UU unemployment requests highlight the resilience of the labor market and slow down the Fed cuts.
He Dollar Australian shows an exceptional bullish tone in the European session on Friday. The torque has reversed previous losses and is practically flat negotiated in the day, at least distance from the maximum of the year to date, in 0.6595.
The pair is on its way to its third consecutive positive week, still promoted by the decision of the Bank of the Australian Reserve of maintaining its reference interest rate at 3.85% earlier this week, against an increase of 25 basic points widely expected.
Beyond that, market speculation about a new round of economic stimuli in China, Australia’s main trading partner, is providing additional support to Aussie. Market sources suggest that Beijing would be preparing more stimulus measures to support their real estate sector.
This news has contributed to relieve the negative pressure of the growing commercial uncertainty, after the US president, Trump announced a new lot of tariffs on some of its main commercial partners, and increased general tariffs to all other countries to 15% or 20% from the previous 10%.
Beyond that, US data published on Thursday showed an unexpected decrease in unemployment applications, which registered their lowest reading in the last seven weeks. These figures compensated for the moderate comments of the FED, Waller and Daly officials, who reiterated the need for lower interest rates and provided additional support to the US dollar.
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.
