Reserve Bank of Australia surprises with rate hike

ForexNewsNow | Published on November 2, 2010 at 10:12 am

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Interest ratesNEW YORK (Forex News Now) – The Reserve Bank of Australia surprised the currency market trading world last night with an unexpected rate hike of one quarter percent, raising the Aussie’s interest rate from 4.50% to 4.75%. Because of this, the AUD/USD pair has reached parity for the second time in a month.

Throughout the last few hours in currency market trading, the pair has hovered around the parity level, poked through, and pulled back. The fact that a surprise rate hike has not been enough to convincingly push the pair well above the parity level tells just how significant the news is that the markets are waiting on for this week. There is simply too much out there waiting to happen for even this major event to push the direction too far.

However, it should be noted that the rate hike was accompanied with a suggestion that the Aussies are going to resume a tightening cycle based upon not only domestic inflationary pressures, but pressures from one of its largest customers, China.

The full impact of this decision probably won’t be felt until the Federal Reserve releases its statement on Wednesday, where the world of currency market trading could get very volatile. Traders are fixated on the amount of “quantitative easing” the Fed is about to embark on. Particular attention will be paid to see if there is any mention as to how large it could be.

Also of note is that India raised rate again last night, for the sixth time this year. This shows just how imbalanced the world’s economy is at the moment, with most Western countries cutting rates, either directly, or through creative means, while countries in the Asian region are trying their best to fight back inflation before it gets out of hand.

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