Tuesday, 2 Feb 2010

Australian Dollar Bearish Following Surprise Rate Decision

After this morning's decision by the Reserve Bank of Australia (RBA) to hold interest rates steady, the AUD has come under constant selling pressure. Many investors had anticipated a rate hike to 4% and had priced in these expectations. When the RBA published its surprise decision, this sentiment was withdrawn from the Aussie which plunged over 130 pips in the hour after the release.

RBA Governor Glenn Stevens commented that he would rather sustain Australia's economic growth for the time being, and tackle growing inflation at a later date. Global recovery is still shaky and the RBA apparently did not wish to risk upsetting its country's own recovery in this shaky time.

Positive reports from Europe have also helped give the EUR a boost against its primary currency rivals today. Greece has helped create a mildly positive sentiment by narrowing the government bond spreads over German benchmarks. The euro's positive movement was muted, however, because the European Commission's opinion regarding Greece's fiscal plan is due later this week.