Chinese authorities have promised more proactive fiscal measures and loser monetary policies to boost economic recovery. The RBA is expected to leave interest rates unchanged at restrictive levels on Tuesday. The Australian Dollar performed a significant comeback on Monday’s European session. An improved market sentiment and some comments by China’s President Xi Jinping have provided a fresh boost to the Aussie.
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.