Forex Today: RBA maintains status quo, eyes on US employment data

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Here is what you need to know on Tuesday, December 9:

The Australian Dollar (AUD) gathers strength against its rivals on Tuesday, following the Reserve Bank of Australia's (RBA) policy announcements. In the second half of the day, JOLTS Job Openings data for September and October, and weekly ADP Employment Change data from the US will be watched closely ahead of the Federal Reserve's highly-anticipated policy meeting.

The RBA left the policy rate unchanged at 3.6% after the December meeting, as expected. In the policy statement, the RBA noted that recent data suggest the risks to inflation have tilted to the upside, but added that it will take a little longer to assess the persistence of inflationary pressures. Commenting on the policy outlook in the post-meeting press conference, "the outlook is for an extended pause or hikes, would not put a probability on it," said RBA Governor Michele Bullock. After posting marginal losses on Monday, AUD/USD gained traction in the Asian session and was last seen rising more than 0.3% on the day near 0.6650.

The US Dollar (USD) Index edged higher in the American session on Monday and closed the day with small gains as Wall Street's main indexes corrected lower. The USD Index struggles to build on Monday's recovery and holds steady at around 99.00 in the European morning on Tuesday.

Late Monday, US President Donald Trump threatened to impose ‌a 5% tariff on Mexico if it doesn't immediately provide additional water to help US farmers, accusing the country of violating a decades-old treaty that grants US farmers access to water from the Rio Grand. Additionally, Trump said that he will impose severe tariffs on fertilizer from Canada if he deems it necessary in order to bolster domestic production. US stock index futures trade flat early Tuesday.

US Dollar Price This Month

The table below shows the percentage change of US Dollar (USD) against listed major currencies this month. US Dollar was the weakest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.45%	-0.72%	-0.11%	-0.91%	-1.45%	-0.99%	0.24%
EUR	0.45%		-0.27%	0.33%	-0.47%	-1.01%	-0.54%	0.69%
GBP	0.72%	0.27%		0.87%	-0.20%	-0.74%	-0.27%	0.97%
JPY	0.11%	-0.33%	-0.87%		-0.80%	-1.36%	-0.88%	0.34%
CAD	0.91%	0.47%	0.20%	0.80%		-0.60%	-0.07%	1.16%
AUD	1.45%	1.01%	0.74%	1.36%	0.60%		0.47%	1.72%
NZD	0.99%	0.54%	0.27%	0.88%	0.07%	-0.47%		1.24%
CHF	-0.24%	-0.69%	-0.97%	-0.34%	-1.16%	-1.72%	-1.24%

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).

EUR/USD failed to make a decisive move in either direction and closed flat on Monday. The pair holds steady at around 1.1650 to start the European session. European Central Bank (ECB) policymaker Joachim Nagel will deliver a speech later in the session.

GBP/USD remains relatively calm for the second consecutive day on Tuesday and continues to fluctuate in a narrow range below 1.3350.

USD/JPY stabilizes near 156.00 after rising about 0.4% on Monday. Japanese Prime Minister Sanae Takaichi said on Tuesday that she will make economic and fiscal decisions at the appropriate time and added that she will take into account interest rates, foreign exchange rates and prices.

Gold registered small losses on Monday and stretched lower early Tuesday. At the time of press, XAU/USD was trading in negative territory near $4,180.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.