Aussie dollar strengthens after RBA announcement

Tuesday 04 September 2012

Article by Mozo

There was some good news for Australian tourists yesterday (September 3rd), as the country's central bank gave no signs of imminently cutting interest rates.

This led the Aussie dollar to hit $1.0285, rebounding from a six-week low of $1.0224.

While few onlookers had expected the Reserve Bank of Australia (RBA) to actually cut interest rates from 3.25 per cent yesterday, some believed that policymakers would hint at future changes as the bank looks to protect the currency and economy from global factors.

The RBA conceded data from China – the world's largest manufacturer – indicated the outlook was becoming more uncertain, but it gave no hint of whether this may lead to another rate cut soon.

Some investors believed that rate cuts could come as soon as next month and this induced a wave of short covering, which gave the Aussie dollar its boost against the US currency.

AUD also rose from multi-month lows against some of the world's most important currencies – including the euro and the yen – while it also rallied against its New Zealand counterpart.

"The Aussie's move was simply positioning as markets were a bit short," a trader at a European bank in Singapore told the Economic Times. 
   
This could be a good time to purchase travel money for any Aussies wanting to head abroad in the near future, as the economic position is likely to become less clear.

The Aussie dollar has fallen around four per cent in the last few weeks from a near four-month high of $1.0600, as markets grew increasing bearish on China – Australia's biggest market for mining commodities.

And although the RBA's path remains clear at the minute, the Aussie dollar's ceiling is likely to be capped as markets predict the central bank will eventually have to reduce rates.

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