The Aussie dollar, as it’s colloquially known, has risen for a second-straight day. Historically this is a function of a growing sense of cautious optimism at the financial markets. As one example, the Reserve Bank of Australia (RBA) concluded its regular policymaking meeting last Tuesday raising rates by 25 basis points. As anticipated, they chose to maintain the cash rate at 4.10%. As global economic tensions rise, the RBA’s statements highlight both the progress in managing inflation and the challenges posed by international trade dynamics.
Underlying inflation is on a downward track, as the RBA expected, and still falling. The Bank highlighted the need for continued progress on keeping inflation in its target band of 2% to 3%. The RBA Board strongly focused on the need to instill confidence in order to sustain this growth. Their goal is to make things stable before they start changing the tone of monetary policy.
Global Trade Tensions
In fact, the Australian economy continues to exhibit an extraordinary level of resilience. There are fears of retaliatory tariffs from the US, particularly given the current trade spat with Australia’s biggest trading partner, China. US President Joe Biden has not personally placed tariffs on Australia. Any further escalation of the developing US-China trade war would be damaging for Australia’s economy. The RBA accepted this latter risk, saying in its statement that there was “considerable” uncertainty over global trade advancements.
Newly appointed Michele Bullock, the RBA’s Governor, answered these fears with a decisive No. Ms. Frydenberg sought to reassure jittery markets that Australia was well placed to weather any storm blown in by a new global trade war. Her remarks were intended to reassure investors and stakeholders overall that Australia was well-positioned and would remain adaptable in the face of increasing global trade tensions.
Market Reactions and Comparisons
The Australian dollar is very strong at the moment. Simultaneously, the EUR/USD is advancing to multi-day highs, above 1.0860. This increase follows the announcement that the European Union was preparing retaliatory measures. These moves are an effort to mitigate the impacts of future tariffs coming from the U.S.
Gold prices have exploded, topping $3,120 shortly after pulling back from Tuesday’s record close of $3,150. This increase happens almost in defiance of rattling currency woes. From a demand perspective, these market developments are indicative of the overall investor sentiment and response to changing trade policies worldwide.