Forex - Aussie up after RBA holds at 2.5%, but notes better jobs outlook

Investing.com - The Australian dollar spiked higher on Tuesday after the central bank held its cash rate steady at a record low 2.5% and hinted that a firming labor market bears watching.

AUD/USD traded at 0.8729, up 0.56%, after the central bank decision. USD/JPY traded at 113.57, down 0.37%.

"Recent data on prices confirmed that inflation is running between 2 and 3 per cent, as expected, and this is likely to continue," Reserve Bank of Australia Governor Glenn Stevens said ina staement.

"Although some forward indicators of employment have been firming this year, the labour market has a degree of spare capacity and it will probably be some time yet before unemployment declines consistently."

Australia's September trade deficit widened to A$2.3 billion, outpacing an expected A$1.950 billion, while retail sales rose 1.2% month-on-month, beating a 0.4% gain expected.

Markets in Tokyo re-opened Tuesday.

Overnight, the dollar strengthened against most major currencies after a widely-watched U.S. factory barometer beat expectations, while a Bank of Japan Friday decision to beef up its stimulus programs bolstered the greenback further.

The Institute of Supply Management reported earlier that its manufacturing purchasing managers' index rose to 59.0 in October from 56.6 in September. Analysts had expected the index to decline to 56.2 in October, and the surprise uptick sparked fresh demand for the dollar by stoking sentiments that U.S. recovery continues to gain steam.

Elsewhere, the greenback continued to see support against most major currencies after the Bank of Japan said last week it was raising its monetary base target to an annual increase of ¥80 trillion from ¥60-70 trillion, a preemptive move to steer the economy away from deflationary decline while improving the chances of reaching inflation goals.

Further fueling greenback demand, a Japanese government panel overseeing the Government Pension Investment Fund approved plans on Friday for the fund to raise its holding of foreign stocks to 25% of its portfolio from 12%.

Meanwhile in the euro zone, the single currency came under pressure after the U.K.-based Markit Economics research group reported that its German manufacturing PMI fell to 51.4 in October from 51.8 the previous month, disappointing expectations for the index to remain unchanged.

Markit's manufacturing PMI for the entire euro zone ticked down to 50.6 this month from 50.7 in September. Analysts had expected the index to remain unchanged, and the dollar saw added support in a rather quiet session.

The US dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.29% at 87.20.

On Tuesday, investors will track data on U.S. factory orders as well as the results of U.S. congressional elections.