AUD/USD jumped on the relatively surprising decision to raise the interest rates in Australia. Early expectations stood on a another freeze of the rates at 4.50%, but Glenn Stevens decided not wait for inflation to be too high. The Australian dollar is now aiming at uncharted area.
The moves comes despite a relatively weak CPI read last week. Contrary to producer prices, quarterly consumer prices rose only marginally, shifting economists’ views that no rate will come. Stevens probably saw rising PPI and especially the strong growth. Australia’s economy is enjoying Chinese growth and growing rapidly with it. Strong growth can trigger inflation.
China already deals with inflation. Australia didn’t want to wait for it to happen and took preliminary action. So, this time, Australia didn’t participate in the “currency war” and didn’t try to weaken the currency – it took action to address inflation and disregarded the currency wars. The result is a stronger currency.
AUD/USD now trades at 0.9990, after touching parity once again. The surprise move by the RBA sent it about 100 pips higher, from 0.9870 before the decision to as high as 0.9992 afterwards. The strong move came in the middle of a quiet and usual Asian session, and AUD/USD stabilized after initial jump.
When Europe gets in play, it will be interesting to see if AUD to USD gets pushed beyond parity. This is not the first time that these levels were reached. On October 15th, 1.0002 was reached, but it was s spike move on Friday. It lasted very shortly.
Now, backed with a higher rate, AUD/USD parity may prevail.
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