Home Forex Australian dollar surges after its central bank keeps rates on hold

Australian dollar surges after its central bank keeps rates on hold

by Jonathan Adams
Australian central bank

The Australian dollar surged after the country’s central bank held interest rates at a record low

The Australian dollar surged on Tuesday after the country’s central bank held interest rates at a record low, while U.S. President Donald Trump’s threat of additional tariffs on Chinese goods kept the Yuan under pressure.

Currency markets were mostly quiet at the start of European trading, however, with investors far from panicking about the prospect of a breakdown in negotiations between China and the United States to resolve their trade dispute.

The Aussie rallied as much as 0.8 percent to $0.7048, after the Reserve Bank of Australia held its cash rate at 1.50 percent, dashing speculation it may ease policy following a weaker-than-expected reading of inflation.

Central banks across the globe have turned increasingly dovish in 2019, raising expectations that policymakers would ease monetary conditions.

Today’s position from the RBA marks a correction to the recent trend in G10 FX, where expectations of policy normalisation have been scaled back and fresh easing (particularly in Australia and New Zealand) has been priced in, ING analysts said.

While Australia’s central bank kept rates unchanged, it opened the door wider for future cuts.

Asian assets staged a small recovery but sentiment remained fragile after Trump’s latest threat to raise tariffs on Chinese goods shocked financial markets.

Trump tweeted on Sunday that he would raise tariffs on $200 billion worth of Chinese goods to 25 percent from 10 percent by the end of the week and would “soon” target the remaining Chinese imports with tariffs.

The Yuan was at one point on course for its worst daily drop in 10-months as investors who had banked on the resolution of trade talks worried about a serious escalation.

Still, moves in FX markets were limited, suggesting investors were not convinced Trump’s threat of tariffs would derail the talks and hurt the global economy.

China’s offshore Yuan fell slightly to 6.7781 Yuan per dollar after briefly touching a four-month low on Monday of 6.8218.

The U.S. dollar slipped 0.1 percent against a basket of peers, the index down to 97.420.

From China’s perspective, a break up in negotiations isn’t really favourable for the domestic economy. They want to get a deal one way or the other, said Yukio Ishizuki, senior currency strategist at Daiwa Securities.

The safe-haven yen, which tends to benefit during periods of geopolitical or financial stress as Japan is the world’s biggest creditor nation, was little moved at 110.715 yen on Tuesday after briefly touching a five-week high on Monday.

The euro rose to $1.1215, up 0.1 percent.

Sterling rose 0.2 percent to $1.3124 on hopes that talks between the Conservative and Labour parties over Brexit can make headway.

This article is for information purposes only.
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