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Streuth! RBA raises rates 06/10/2009

Posted by chrisdshaw in Economics, FX.
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The Royal Bank of Australia has surprised everyone (well, 19 out of the 20 economists surveyed by Bloomberg) with a 25bp hike in its key cash rate. Governor Glenn Stevens, in his post-meeting statement, said: “With growth likely to be close to trend over the year ahead, inflation close to target and the risk of serious economic contraction in Australia now having passed, the board’s view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy”.

Treasurer Wayne Swan said: “The Australian economy is outperforming other advanced economies and I guess many economists will see the decision today as a consequence of economic recovery”.

Global equity markets and commodities have rallied on the back on the news. Gold has reached a new record high of USD 1,036. This is also partly a symptom of a slightly weaker US Dollar, which sold-off overnight on the back of a story by the UK Independent newspaper, that oil producing countries were in advance talks with European countries about moving away from the greenback towards a basket of currencies when pricing oil.  The story has since been strongly denied by GCC officials.

Unsurprisingly, the AUD has beaten all other major currencies. The GBP, by contrast, has resumed its trend downwards, following much worse than expected industrial production figures for August released earlier today- the lowest level since 1987. USDJPY is trading stubbornly around the 89.10 level, whereas EURUSD is currently trading just above the 1.4700 handle,having tested the 1.4750 level.

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