Forex Today: RBA cuts policy rate by 25 bps, eyes on US inflation data
Here is what you need to know on Tuesday, August 12:
The US Dollar (USD) stays resilient against its major rivals in the European morning on Tuesday as investors gear up for the highly-anticipated July Consumer Price Index (CPI) data. Earlier in the day, ZEW Survey - Economic Sentiment data for Germany and the Eurozone will be featured in the European economic docket. Additionally, several Federal Reserve (Fed) policymakers will be delivering speeches during the American trading hours.
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 | 0.30% | 0.09% | 0.49% | 0.22% | 0.35% | 0.49% | 0.37% | |
| EUR | -0.30% | -0.21% | 0.21% | -0.07% | 0.06% | 0.15% | 0.08% | |
| GBP | -0.09% | 0.21% | 0.34% | 0.14% | 0.27% | 0.35% | 0.28% | |
| JPY | -0.49% | -0.21% | -0.34% | -0.22% | -0.09% | 0.08% | 0.03% | |
| CAD | -0.22% | 0.07% | -0.14% | 0.22% | 0.14% | 0.21% | 0.12% | |
| AUD | -0.35% | -0.06% | -0.27% | 0.09% | -0.14% | 0.09% | 0.02% | |
| NZD | -0.49% | -0.15% | -0.35% | -0.08% | -0.21% | -0.09% | -0.07% | |
| CHF | -0.37% | -0.08% | -0.28% | -0.03% | -0.12% | -0.02% | 0.07% |
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 Reserve Bank of Australia (RBA) announced that it lowered the policy rate by 25 basis points (bps) to 3.6% after the August meeting, as widely anticipated. In the policy statement, the RBA emphasized the uncertainty surrounding the economic outlook and noted that the policy is well-positioned to respond to international developments that could have a material impact on activity and inflation. RBA Governor Michele Bullock said that their policy is forward-looking, assuming that they can continue to lower rates. AUD/USD stays under modest bearish pressure and trades near 0.6500 in the European morning on Tuesday.
The UK's Office for National Statistics announced on Tuesday that the ILO Unemployment Rate remained unchanged at 4.7% in the three months to June. In this period, the Employment Change was 239K and the wage inflation, as measured by the Average Earnings Excluding Bonus, rose by an annual rate of 5%, matching the previous print. GBP/USD showed no immediate reaction to these figures and was last seen fluctuating below 1.3450.
US President Donald Trump announced late Monday that tariffs aimed at Chinese imports will be delayed by 90 days. China’s Commerce Ministry said early Tuesday that the country will suspend adding some US firms to the unreliable entity list for 90 days and will suspend additional tariffs on US goods for 90 more days. US stock index futures trade mixed in the European morning on Tuesday and the USD Index holds steady at around 98.50 after posting marginal gains on Monday. Annual CPI inflation in the US is forecast to edge higher to 2.8% in July from 2.7% in June.
After losing about 0.2% on Monday, EUR/USD seems to have stabilized above 1.1600 in the European morning on Tuesday.
Gold suffered large losses on improving risk mood on Monday, falling more than 1.5% on a daily basis. XAU/USD stays in a consolidation phase slightly below $3,350 early Tuesday.
USD/JPY gained nearly 0.3% on Monday and closed the second consecutive day in positive territory. The pair moves sideways above 148.00 to start the European session on Tuesday.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Eren Sengezer
FXStreet
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.
