Investing.com - The Australian dollar surged after the Reserve Bank of Australia held the cash rate at a record low 2.5% as widely expected in its latest board review on Tuesday.
Governor Glenn Stevens emphasized continued accomodative policy while warning that the exchange rate remains high by historical standards.
"The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months. The exchange rate remains high by historical standards," Stevens said.
"Looking ahead, continued accommodative monetary policy should provide support to demand, and help growth to strengthen over time. Inflation is expected to be consistent with the 2%–3% target over the next two years.
AUD/USD traded at 0.9312, up 0.42%, after the announcement.
Earlier, Australia's March trade balance reported a surplus of A$713 million, compared to an expected surplus of A$1.2 billion.
Overnight, the dollar traded lower though steadily against most major currencies after weak manufacturing numbers out of China sent investors to the yen.
Investors were paying close attention to events unfolding in Ukraine, after conflict between the government and pro-Russian separatists grew more widespread and intensified over the weekend, which weakened the dollar on concerns Washington will get dragged deeper into the chaos and stifle recovery.
Elsewhere, soft output data out of China sparked safe-haven demand for the yen, which came at the greenback's expense.
A final reading of China’s HSBC manufacturing purchasing managers’ index came in at 48.1 April, down from a preliminary estimate of 48.3 and missing forecasts for an uptick to 48.4. A reading below 50 indicates a contraction.
Supporting the U.S. currency, however, was an upbeat report on the U.S. service sector, which kept the dollar stable throughout the session.
In a report, the Institute of Supply Management said its non-manufacturing purchasing managers' index rose to a five-month high of 55.2 in April, from a reading of 53.1 in March, compared to expectations for a rise to 54.1.
The US Dollar Index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.06% at 79.49.
On Tuesday, the U.S. is to release trade data.