Late Wednesday, the People’s Bank of China (PBoC) announced the biggest cut for more than two years in the amount of cash that banks are required to hold as reserves.Reserve Ratio Requirements (RRR) for banks will be cut by 50 basis points (bps) from February 5, which will provide 1 trillion yuan ($139.8 billion) in long-term capital.
Market reaction
At the time of writing,
the AUD/USD pair is trading around 0.6578, up 0.02% on the day.
Australian Dollar FAQs
What key factors drive the Australian Dollar?
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA).Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore.The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance.Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other.This influences the level of interest rates in the economy as a whole.
The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down.Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low.
The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
How does the health of the Chinese Economy impact the Australian Dollar?
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD).When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value.The opposite is the case when the Chinese economy is not growing as fast as expected.Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
How does the price of Iron Ore impact the Australian Dollar?
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination.The price of Iron Ore, therefore, can be a driver of the Australian Dollar.Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases.The opposite is the case if the price of Iron Ore falls.Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
How does the Trade Balance impact the Australian Dollar?
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar.
If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports.Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Information on these pages contains forward-looking statements that involve risks and uncertainties.Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets.You should do your own thorough research before making any investment decisions.FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements.It also does not guarantee that this information is of a timely nature.Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress.All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned.The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations.The author makes no representations as to the accuracy, completeness, or suitability of this information.
FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use.Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Follow us on Telegram
Stay updated of all the news
Recommended content
Editors’ Picks
AUD/USD seems to have moved into a consolidative phase
[]https://www.fxstreet.com/currencies/audusd
AUD/USD added to Tuesday’s uptick, although its price action remained stuck within a rangebound theme despite the favourable risk-on mood.
AUD/USD News
EUR/USD regains some shine prior to ECB
[]https://www.fxstreet.com/currencies/eurusd
EUR/USD advances markedly after two daily pullbacks in a row, although a convincing breakout of the 1.0900 barrier remains elusive for the time being.
EUR/USD News
Gold plunges with renewed US Dollar demand
[]https://www.fxstreet.com/markets/commodities/metals/gold
Gold came under bearish pressure and turned negative on the day below $2,020 in the American session on Wednesday.Upbeat PMI readings from the US helped the benchmark 10-year US Treasury bond yield retrace its daily decline and weighed on XAU/USD.
Gold News
Top 3 Price Prediction Bitcoin, Ethereum, Ripple: BTC defies respectable correction, restores above $40,000
Bitcoin (BTC) price is attempting a recovery barely 24 hours after speculation of a “respectable correction” that was expected to send BTC to the $35,000 range.Ethereum (ETH) price is yet to heed BTC’s cue, while Ripple (XRP) appears to have bottomed out.
Read more
Tomorrow is the big day: The ECB meeting and the US releasing Q1 GDP
The Bank of Canada meets today but no change is forecast.
We also get the US flash purchasing managers indices, but tomorrow is the big day, with the ECB meeting and the US releasing Q1 GDP, which will contain data on consumption and thus on inflation.
