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Forex Today: Aussie surges on hawkish RBA, eyes on central bank speak

Here is what you need to know on Tuesday, February 7:

The US Dollar Index managed to build on last week's gains and closed in positive territory on Monday amid risk aversion. Early Tuesday, the US Dollar stays relatively quiet while the Australian Dollar outperforms its rivals following the Reserve Bank of Australia's (RBA) policy announcements. In the absence of high-impact data releases, investors will pay close attention to central bank speakers that include Bank of Canada Governor Tiff Macklem and FOMC Chairman Jerome Powell.

During the Asian trading hours on Tuesday, the RBA announced that it hiked its policy rate by 25 basis points to 3.35% as expected. In its policy statement, the RBA noted that the board expects further increases in interest rates. Boosted by the hawkish RBA tone, AUD/USD rose sharply and was last seen rising 0.7% on the day at around 0.6930. 

RBA: Board expects further increases in interest rates.

EUR/USD extended its slide and came within a touching distance of 1.0710 before recovering modestly. As of writing, the pair was trading flat on the day near 1.0730. The data from Germany revealed that Industrial Production contracted by 3.1% on a monthly basis in December, compared to the market expectation for a decrease of 0.6%. European Central Bank (ECB) Governing Council member Isabel Schnabel will be delivering a speech later in the day.

Despite the broad-based US Dollar strength, GBP/USD stayed relatively quiet as encouraging Brexit-related headlines helped the Pound Sterling hold its ground. The Guardian reported late Monday that EU and UK negotiators have made a breakthrough in the Northern Ireland Protocol dispute. Bank of England (BoE) Chief Economist Huw Pill and BoE Deputy Governor Jon Cunliffe will speak on Tuesday.

The BoC's Market Participants Survey for the fourth quarter of 2022 showed on Monday that the median of responses for the policy rate by end-2023 stood at 4%, forecasting a 50 bps cut. USD/CAD closed in positive territory on Monday but seems to be struggling to preserve its bullish momentum early Tuesday. At the time of press, the pair was trading modestly lower on the day at 1.3425.

Following the bullish start to the week, USD/JPY is having a difficult time gaining traction early Tuesday and trading in negative territory slightly above 132.00. The data from Japan revealed earlier in the day that the Coincident Index declined to 98.9 in December's flash estimate and the Leading Economic Index edged slightly lower to 97.2 from 97.4 in November.

Gold price failed to make a decisive move in either direction on Monday before starting to stretch higher early Tuesday. With the benchmark 10-year US Treasury bond yield declining toward 3.6% following Monday's increase, XAU/USD trades in positive territory above $1,870.

Bitcoin closed in negative territory for the fifth straight day on Monday before going into a consolidation phase near $23,000 early Tuesday. Ethereum lost nearly 1% on Monday but managed to gain traction early Tuesday. At the time of press, ETH/USD was up 1.2% on the day at $1,635.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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