Australian Dollar Higher as RBA Sees Domestic, China Improvement

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THE TAKEAWAY: The Australian Dollar fell briefly then rallied as the Reserve Bank said there were signs that the economy was responding to the low interest rates.

The Reserve Bank of Australia released the minutes from its March meeting today and covered issues including the high Australian Dollar, restrained borrowing, the global outlook and Australia’s largest trading partner, China.

The so called ‘Aussie Dollar’ has seen a close to a 50 per cent appreciation over the last 4 years against the U.S. Dollar and despite seeing lower levels more recently, the RBA still maintained that the currency was at a high level. In terms of global economies, the RBA reported that the U.S. economy is experiencing moderate growth with continued improvement in the housing market, with China also seeing some sustainable growth pace. The Euro area remained an area where the Reserve Bank saw contractions in economies and Australian policy makers expected that economies affected by the sovereign debt issues would continue to see weakness. Domestically, the Bank saw that dwelling construction had picked up further in the December quarter and that although indicators of consumption were mixed; growth in that sector was still modest. Mining investment in Australian continued to be strong, but investment outside the sector was estimated to have declined with expectations that it would pick up into 2014.

The Australian Dollar fell sharply against the Greenback, then rallied on the release as investors reacted to the Bank’s view that the results of the series of rate cuts throughout 2011 still had further to run, as well as interest rate swaps pricing in only an 8 percent chance of a rate cut at the next central bank meeting.

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