Forex trading resulted in the AUD/USD pair rising by more than 2 percent on Feb. 4, as global market participants were impacted by the latest information provided by the Reserve Bank of Australia.
The currency pair gained 2.2 percent during the day, according to Reuters. This happened after lackluster economic conditions and the policies of the central bank of the Asian Pacific nation resulted in the Aussie plunging by almost 20 percent over the last year.
Forex trading prompted by RBA statements
The increase in the AUD/USD happened after Glenn Stevens, governor of the RBA, indicated that the financial institution would not change its benchmark interest rate, leaving it steady at 2.5 percent. The RBA stated that for the time being, it would likely maintain its borrowing costs. Stevens asserted that the organization was likely on track to achieve its goals for inflation and demand with the existing monetary policy.
The central bank noted that its current use of monetary stimulus levers leans toward stimulating further growth. In addition, the government official indicated his shifting stance on the Aussie, according to Bloomberg.
Central bank notes new view of Aussie
While Stevens had said previously that the value of the emerging-market currency was “uncomfortably high,” he stated that the recent depreciation in the Australian dollar would help facilitate economic growth, the media outlet reported.
“They’ve shifted very firmly to a neutral bias,” Su-Lin Ong, who works for Royal Bank of Canada in Sydney as head of Australian economic and fixed-income strategy, told the news source. “The fact they’ve taken out the reference to the uncomfortably high Australian dollar also tells you that they’re clearly pleased with what the currency’s done over the past couple of months.”
The market expert is correct in that the statements about the RBA being comfortable with the currency value of the Aussie could have substantial implications for forex trading and the AUD/USD. The fact that the financial institution is satisfied with the current strength of the currency means that the organization will be less likely to take further action aimed at devaluation.
“Together, these statements suggest that the exchange rate is approaching levels at which the RBA is more comfortable and that policymakers are removing the threat of using their most powerful tool to drive it lower,” Citibank analysts wrote in a note that was written for European clients, Reuters reported. “This will be viewed as the market as an all-clear signal on the currency and is likely to invite a further reversal of short positions among leveraged investors.”
Importance of Fed stimulus
Another factor that is considered by many market experts to play a crucial role in the AUD/USD is the actions that the Federal Reserve takes to stimulate the U.S. economy.
The Federal Open Market Committee announced at the end of its most recent meeting that starting in February, it would purchase $65 billion worth of bonds per month. The central bank could easily push this amount lower at subsequent meetings, depending on the strength of economic data in the nation.
Many market experts are currently waiting to see the results of the latest U.S. Department of Labor report, which is scheduled to released on Friday, Feb. 7.
This government agency will probably end up showing that in January, the jobless rate declined to 6.6 percent and payrolls rose by 190,000, according to economists who took part in a recent MarketWatch poll. Another key piece of information came in the form of a report released by the Institute for Supply Management, which indicated that in January, its manufacturing index fell short of the predictions of market experts, the media outlet reported.
The lackluster activity was blamed by many industry participants on challenging weather. One market expert said that attributing poor economic conditions to the cold will not work for much longer.
“I think the market is frustrated with that argument,” Brad Bechtel, managing director at Faros Trading, told the news source. “After the ISM data, it needs to see some better data otherwise it’s going to get worried.”
If the jobs report is also disappointing, this information could put pressure on the FOMC to refrain from dialing down its existing regimen of bond purchases quickly. Many market participants have been speculating about the schedule that the Fed will use to gradually reduce these transactions.
Many believe that if the data that is released shows strength in the U.S. economy, then the central bank will have the justification it needs to continue lowering its bond purchases. Such a development would reduce the pace at which the U.S. money supply is growing, and provide some tailwinds to the value of the greenback.
Any factors that serve to push this currency higher could have a substantial impact on forex trading and the value of the AUD/USD.
The post Forex Trading Results in Spike in AUD/USD appeared first on | HY Markets Official blog.
Article provided by HY Markets Forex Blog
