Australian Dollar skittish after RBA interest rate hint
AUSTRALIAN DOLLAR REVIEW | RBA hints a rate cut while talk grows that Aussie is overvalued
THE Australian Dollar began a rather rough week opening on 4 February at 1.506 against the British Pound, and extending a decline to 1.531 by Friday.
Sentiment was positive ahead of the expected Reserve Bank of Australia decision to keep interest rates unchanged. The Aussie currency hit a high for the week of 1.503 to the Pound just before the release of trade data, which was expected to show a decrease in the trade deficit in line with the increase in the pace of growth of China’s service industry.
The unsurprising decision by the RBA came with another surprise of its own, though. The bank’s governor Glenn Stevens announced that, “The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand.
“Looking ahead, with the labor market softening somewhat and unemployment edging higher, conditions are working to contain pressure on labor costs.”
Essentially, this hint at an interest rate cut in the near future has scared some investors off, with talk emerging that the Australian Dollar is overvalued.
The release of further data showing a rise in unemployment caused the Aussie to hit a 12-week low against the US Dollar. The European Central Bank’s president, Mario Draghi, stated that the Euro’s strength may hamper the region’s economic recovery. This negative sentiment failed to add any strength to emerging currencies.
For the time being, the Aussie is likely to remain skittish around announcements from the RBA.
By Jesse Crooks of by 1st Contact Money Transfers
Exchange rates as of 09:30 GMT, 11 February 2013
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