Reserve Bank of Australia Declines to Raise Rates

ForexNewsNow | Published on October 5, 2010 at 5:39 pm

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Intraday analysis - a pile of Australian dollarsNEW YORK (Forex News Now) – In online forex news today, the Reserve Bank of Australia, in a surprise move, declined to increase interest rates as expected, resulting in the Australian dollar falling sharply in early-morning trading before climbing slightly.

The Australian central bank decided to keep interest rates at their current level of 4.5%, more than likely due to a recent pickup in the strength of the Aussie against other key currencies, including the dollar. Investors largely expected a rate increase, giving the possibility roughly a 75% chance of occurring.

The severity of the subsequent drop was likely due to the expected rate increase to be priced into the Aussie.

Other contributing factors to the surprise decision include online forex news from the United Kingdom and United States, who have had discussions of potential policy decisions in the short-term come from the Bank of England and Federal Reserve, respectively.

Still, this does not mean that the interest rate will remain frozen at 4.5% for an indefinite period of time.  Ayako Sera, a foreign exchange strategist at Sumitomo Trust Bank, commented on the issue, saying, “We’ve had hawkish talk from the RBA lately so it was a bit of surprise. But it’s not like rate hike expectations have been completely dashed.  I suspect the Aussie will be supported around $0.95.”

Currently, the Aussie stands at 0.9711, up 0.38% after falling well below the 0.96 mark in trading earlier today.  The Aussie is down 0.89% against the euro to 1.4258, up 0.09% to 80.75 on the yen, and down 0.96% to 1.2965 on the New Zealand dollar.

Go-to currency

The Aussie has recently become a go-to currency in the global market due to its being tied to one of the developed world’s best-performing economies during the global recession.  Analysts and traders alike view the Aussie has having great value compared to other major currencies, such as the euro, dollar, pound, and yen.

The continuing strength of the Australian economy has mostly put to rest any talk of lowering interest rates, as is currently ongoing in places such as Japan and the UK.  Australia has also managed to avoid online forex news about quantitative easing like the United States.  The relatively robust performance of the Australia economy is responsible for the attractiveness of the Aussie, which could continue to flourish even after this decision.

It is likely that the RBA will adopt a wait-and-see approach to gauge the effect pending policy changes from the US and UK have on the global markets before entertaining thoughts of raising the interest rate to 4.75%. Should the bank put out word that it will likely initiate such an action, though, expect the Aussie to surge and gain significant ground on its major pairs.

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