Forex Today: RBA maintains policy settings, markets keep a close eye on comments from central bankers
Here is what you need to know on Tuesday, May 7:
The Australian Dollar (AUD) weakens against its rivals early Tuesday as investors assess the Reserve Bank of Australia's (RBA) monetary policy decisions and comments from Governor Michele Bullock. Eurostat will release Retail Sales for March and the US economic docket will feature Economic Optimism and Consumer Credit Change data. Meanwhile, investors will continue to pay close attention to comments from central bank officials.
The RBA left the policy rate unchanged at 4.35% as anticipated after the May policy meeting. In its policy statement, the RBA noted that inflation continued to moderate, albeit at a slower pace than expected. In the post-meeting press conference, RBA Governor Bullock said that the interest at the current level should bring inflation back to target and added that she doesn't think that it will be necessary to tighten the policy again. AUD/USD stays under bearish pressure in the early European morning and was last seen losing 0.3% on the day near 0.6600.
Bullock Speech: RBA Governor speaks on policy outlook after holding interest rate.
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | -0.12% | -0.40% | -0.11% | -0.35% | 0.00% | -0.10% | |
| EUR | 0.05% | -0.07% | -0.33% | -0.05% | -0.27% | 0.04% | -0.05% | |
| GBP | 0.12% | 0.07% | -0.27% | 0.03% | -0.20% | 0.12% | 0.02% | |
| JPY | 0.40% | 0.33% | 0.27% | 0.29% | 0.03% | 0.42% | 0.26% | |
| CAD | 0.11% | 0.05% | -0.03% | -0.29% | -0.22% | 0.09% | -0.01% | |
| AUD | 0.35% | 0.27% | 0.20% | -0.03% | 0.22% | 0.35% | 0.21% | |
| NZD | -0.00% | -0.04% | -0.12% | -0.42% | -0.09% | -0.35% | -0.11% | |
| CHF | 0.10% | 0.05% | -0.02% | -0.26% | 0.00% | -0.21% | 0.11% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
The US Dollar (USD) Index closed the first trading day of the week virtually unchanged as the improving risk mood made it difficult for the USD to gather strength. Early Tuesday, US stock index futures trade mixed and the benchmark 10-year US Treasury bond yield stays below 4.5%.
EUR/USD fluctuates in a tight channel slightly above 1.0750 in the European session on Tuesday after posting small gains on Monday.
GBP/USD closed in positive territory for the fourth consecutive day on Monday but struggled to preserve its bullish momentum during the Asian trading hours on Tuesday. The pair was last seen trading with marginal losses on the day near 1.2550.
USD/JPY rose more than 0.5% on Monday and extended its recovery to the 154.50 area early Tuesday. Japan's top currency diplomat, Masato Kanda, reiterated on Tuesday that the Japanese government may take the necessary steps to deal with excessive market volatility but refrained from commenting on foreign exchange levels.
Gold benefited from retreating US yields and escalating geopolitical tensions, gaining nearly 1% on a daily basis. XAU/USD stays relatively quiet at around $2,320 in the European morning.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.