The week started with subdued action in financial markets as the US Dollar remained steady and US stock index futures traded little changed. Key data releases were expected from Germany and the Eurozone, with revisions to April PMI data by HCOB and Eurostat publishing Producer Price Index figures for March. While the US economic docket had no major releases, investors were closely watching comments from Federal Reserve policymakers.
The US Dollar saw varying changes against major currencies in the last 7 days, with the Japanese Yen being the strongest performer. The USD Index (DXY) experienced heavy selling pressure on Friday following disappointing labor market data, losing nearly 1% for the week. However, it managed to stage a late rebound early Monday. AUD/USD reached its highest level since mid-March at 0.6650 on Friday. The pair retreated slightly at the start of the week but maintained stability above 0.6600.
EUR/USD advanced to a fresh multi-week high above 1.0800 on Friday and rose over 0.5% for the week. The pair fluctuated in a tight channel above 1.0750 early Monday. GBP/USD closed around 1.2550 on Friday after spiking above 1.2630 in the early American session. USD/JPY lost over 3% in the previous week due to suspected fx interventions but rebounded early Monday, rising over 0.6% near 154.00.
Gold closed in negative territory for the second consecutive week but held above $2,300. XAU/USD edged higher in the European morning and was trading above $2,310. The Reserve Bank of Australia (RBA) is set to announce monetary policy decisions in the Asian trading hours on Tuesday. The RBA is expected to hold the policy rate unchanged at 4.35%.
The RBA manages monetary policy for Australia with a primary mandate of maintaining price stability and contributing to economic prosperity. Its main tool is to adjust interest rates, with relatively high rates strengthening the Australian Dollar. Other tools include quantitative easing and tightening. Inflation tends to lead central banks to raise interest rates, attracting capital inflows and increasing demand for the local currency. Macroeconomic data and indicators such as GDP, PMIs, and employment can impact the Australian Dollar.
Quantitative Easing (QE) is used to provide liquidity to financial institutions by purchasing assets, weakening the AUD. Quantitative tightening (QT) involves stopping asset purchases, which can be positive for the Australian Dollar. Overall, the RBA’s decisions and economic data play a significant role in shaping the value of the Australian Dollar in the global market.
