Forex Today: Dovish RBA tone weighs on Aussie, attention turns to US data
Here is what you need to know on Tuesday, December 10:
The Australian Dollar (AUD) stays under selling pressure early Tuesday following the Reserve Bank of Australia's (RBA) monetary policy announcements. The European economic docket will not offer any high-impact data releases. Later in the day, third-quarter Unit Labor Costs and Nonfarm Productivity data from the US will be watched closely by market participants.
The RBA left the Official Cash Rate (OCR) unchanged at 4.35% after its December policy meeting, as expected. "The board is gaining some confidence that inflationary pressures are declining in line with these recent forecasts, but risks remain," the RBA noted in its policy statement. In the post-meeting press conference, RBA Governor Michele Bullock said that they discussed that upside inflation risks had eased but not gone away. AUD/USD came under bearish pressure and was last seen trading near 0.6400, losing more than 0.5% on the day.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.09% | -0.06% | 0.02% | 0.00% | 0.63% | 0.53% | -0.12% | |
| EUR | 0.09% | 0.04% | 0.08% | 0.08% | 0.72% | 0.63% | -0.03% | |
| GBP | 0.06% | -0.04% | 0.04% | 0.07% | 0.68% | 0.59% | -0.07% | |
| JPY | -0.02% | -0.08% | -0.04% | 0.02% | 0.65% | 0.54% | -0.11% | |
| CAD | -0.00% | -0.08% | -0.07% | -0.02% | 0.63% | 0.54% | -0.11% | |
| AUD | -0.63% | -0.72% | -0.68% | -0.65% | -0.63% | -0.10% | -0.74% | |
| NZD | -0.53% | -0.63% | -0.59% | -0.54% | -0.54% | 0.10% | -0.65% | |
| CHF | 0.12% | 0.03% | 0.07% | 0.11% | 0.11% | 0.74% | 0.65% |
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 data from China showed on Tuesday that the trade surplus widened to $97.44 billion in November from $95.27 billion in October. On a yearly basis, Exports rose by 6.7%, while Imports declined by 3.9%. "China has full confidence in achieving this year's economic target," Chinese President Xi Jinping said on Tuesday.
Following a bearish start to the week, the US Dollar (USD) Index edged higher in the American trading hours on Monday and closed in positive territory, supported by the cautious market mood. The USD Index holds steady slightly above 106.00 in the European morning on Tuesday. In the meantime, the benchmark 10-year US Treasury bond yield continues to fluctuate below 4.2%, while US stock index futures trade flat.
EUR/USD registered small daily losses on Monday. The pair holds steady above 1.0550 to begin the European session on Tuesday. The data from Germany confirmed that the Consumer Price Index rose 2.2% on a yearly basis in November.
After rising toward 1.2800, GBP/USD lost its traction and closed virtually unchanged on Monday. The pair stays in a consolidation phase at around 1.2750 early Tuesday.
USD/JPY gathered bullish momentum and gained nearly 0.8% on Monday. The pair moves sideways above 151.00 in the European morning.
Gold turned north on Chinese stimulus hopes and rose about 1% on Monday. XAU/USD continues to push higher early Tuesday and was last seen trading near $2,670.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.