Forex Today: Aussie edges higher on hawkish RBA hold, focus shifts to US data
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Forex Today: Aussie edges higher on hawkish RBA hold, focus shifts to US data

Here is what you need to know on Tuesday, June 18:

The Australian Dollar (AUD) stays resilient against its major rivals early Tuesday as markets assess the Reserve Bank of Australia (RBA) policy announcements and Governor Michele Bullock's comments. ZEW Survey for Germany and the Eurozone will be featured in the European economic docket. Later in the day, Retail Sales and Industrial Production data from the US will be watched closely by market participants.

Following the conclusion of its June policy meeting on Tuesday, the RBA board members decided to keep the Official Cash Rate (OCR) unchanged at 4.35%, as widely expected. "Inflation is easing but has been doing so more slowly than previously expected and it remains high," the RBA noted in its policy statement and added that they expect that it will be some time before inflation is sustainably in the target range. In the post-meeting press conference, Governor Bullock said that policymakers discussed whether to hike rates at the meeting and said that they wanted to make a point that they are alert to upside risks to inflation. AUD/USD edged higher following the RBA event and was last seen rising 0.3% on the day at 0.6630.

Bullock Speech: RBA Governor speaks on interest outlook after standing pat.

Following a bullish start to the week, the US Dollar (USD) struggled to find demand in the second half of the day on Monday. As Wall Street's main indexes pushed higher after the opening bell, the USD Index turned south and closed the day in negative territory. US stock index futures trade marginally higher in the early European morning and the USD Index fluctuates in a tight channel below 105.50. Meanwhile, the benchmark 10-year US Treasury bond yield holds steady slightly below 4.3% after rising more than 1% on Monday.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Euro.

USD   -0.26% -0.10% 0.38% -0.03% -0.21% 0.24% -0.21%
EUR 0.26%   0.18% 0.68% 0.23% -0.04% 0.54% 0.05%
GBP 0.10% -0.18%   0.58% 0.05% -0.23% 0.33% -0.10%
JPY -0.38% -0.68% -0.58%   -0.30% -0.59% 0.00% -0.53%
CAD 0.03% -0.23% -0.05% 0.30%   -0.24% 0.27% -0.16%
AUD 0.21% 0.04% 0.23% 0.59% 0.24%   0.64% 0.13%
NZD -0.24% -0.54% -0.33% 0.00% -0.27% -0.64%   -0.44%
CHF 0.21% -0.05% 0.10% 0.53% 0.16% -0.13% 0.44%  

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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday that there is a chance that the Japanese central bank could raise interest rates at the July meeting, depending on economic, price and financial data and information available at the time. These comments, however, failed to provide a boost to the Japanese Yen. At the time of press, USD/JPY was trading in positive territory at around 158.00.

EUR/USD benefited from the selling pressure surrounding the USD and registered modest gains on Monday. In the European morning on Tuesday, the pair stays in a consolidation phase slightly below 1.0750.

Following Friday's sharp decline, GBP/USD edged higher on Monday. The pair moves up and down in a narrow channel at around 1.2700 early Tuesday.

Gold lost its traction and closed in the red on Monday, pressured by rising US T-bond yields. XAU/USD holds steady near $2,320 in the European morning.

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.