Forex Today: Australian Dollar weakens post-RBA, eyes on comments from central bankers
Here is what you need to know on Tuesday, November 4:
The Australian Dollar (AUD) stays under bearish pressure early Tuesday as investors assess the Reserve Bank of Australia's (RBA) monetary policy announcements. In the second half of the day, market participants will pay close attention to comments from central bank officials of major economies.
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 strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.02% | -0.02% | -0.41% | 0.34% | 0.49% | 0.74% | 0.30% | |
| EUR | -0.02% | -0.03% | -0.35% | 0.34% | 0.47% | 0.73% | 0.28% | |
| GBP | 0.02% | 0.03% | -0.46% | 0.37% | 0.50% | 0.76% | 0.32% | |
| JPY | 0.41% | 0.35% | 0.46% | 0.73% | 0.88% | 1.14% | 0.83% | |
| CAD | -0.34% | -0.34% | -0.37% | -0.73% | 0.08% | 0.38% | -0.05% | |
| AUD | -0.49% | -0.47% | -0.50% | -0.88% | -0.08% | 0.26% | -0.19% | |
| NZD | -0.74% | -0.73% | -0.76% | -1.14% | -0.38% | -0.26% | -0.44% | |
| CHF | -0.30% | -0.28% | -0.32% | -0.83% | 0.05% | 0.19% | 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 RBA announced on Tuesday that it left the policy rate unchanged at 3.6%, as widely anticipated. In the policy statement, the RBA noted that it expects the trimmed mean inflation to average 3.2% through mid-2026, easing to 2.7% by December 2026 and 2.6% by the end of 2027. While speaking on the policy outlook in the post-meeting press conference, RBA Governor Michele Bullock said that they did not consider a rate cut at this meeting but added that it's an open question about whether there are many more rate cuts to come. AUD/USD stays on the back foot and declines toward 0.6500 in the European session, losing more than 0.4% on the day.
The data from the US showed on Monday that the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) declined to 48.7 in October from 49.1 in September. The Employment Index of the PMI survey rose to 46 from 45.3 in this period, while the Prices Pair Index declined to 58 from 61.9. After posting marginal gains on Monday, the US Dollar (USD) Index climbed to its highest level since early August above 100.00 in the Asian session on Tuesday before correcting lower toward 99.70. Meanwhile, US stock index futures lose between 0.7% and 1.4% in the European morning on Tuesday, reflecting a risk-averse market atmosphere.
EUR/USD extended its slide early Tuesday and dipped slightly below 1.1500 to touch its weakest level in three months. In the early European session, the pair corrects higher and trades at around 1.1530. European Central Bank (ECB) President Chritsine Lagarde and ECB policymaker Joachim Nagel are scheduled to deliver speeches later in the day.
GBP/USD struggles to gain traction and trades below 1.3150 following Monday's choppy action. The Bank of England (BoE) will announce monetary policy decisions on Thursday.
Japan Prime Minister Sanae Takaichi said on Tuesday that Japan is still halfway through in achieving sustained achievement of the Bank of Japan’s (BoJ) price target. USD/JPY turns south in the European session on Tuesday and trades below 153.50, losing more than 0.5% on a daily basis.
Gold struggles to benefit from the risk-averse market environment and trades marginally lower on the day below $4,000.
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.
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