Tuesday, 2 Nov 2010

Aussie Dollar up Sharply on Rate Increase

The day prior to the Fed's announcement that it will begin buying assets thereby increasing the money supply, the US dollar is not surprisingly weaker. Performing well against the greenback have been the Euro and the Aussie dollar.

The Aussie dollar was stronger on the day following the decision by the Reserve Bank of Australia to increase interest rates by 25 basis points to 4.75%. The decision to raise rates was made in order to fend of increasing inflation in the Australian economy that is picking up speed due to the profitable mining industry.

Many analysts were caught off guard with the rate hike as roughly 2/3 of analysts surveyed forecasted the RBA to hold rates steady at 4.50%.

Following the announcement the Aussie dollar soared past parity with the US dollar and traded as high as 1.0022. The AUD/USD is currently trading at 1.0011, after opening the day at 0.9974.

Traders were also bidding the euro higher following better than expected European Manufacturing PMI. The EUR/USD was trading higher at 1.4020, following an opening day price of 1.3916.

Market watchers will be following two headline events to come both today and tomorrow; the US mid-term elections and the Federal Reserve Open Market Committee announcement.

Both the AUD/USD and the EUR/USD should strengthen following these two events. The next resistance level for the EUR/USD is located at the October 25th high at 1.4080.