The Australian dollar surged after the Reserve Bank of Australia’s announcement that it held interest rates unchanged, resulting in the currency to briefly rise above the key 76 US cent level. After hitting a high of $0.7630 against the US dollar, the aussie fell back down to $0.7544 by mid-European session trading.
It was widely expected that the RBA would leave its benchmark interest rate unchanged at 2% (for a 10th consecutive month). However, some economists believe that there is scope for a rate cut down the road, especially if inflation remains stubbornly low and if unemployment worsens. Negative developments to the domestic and global economy would also warrant easier monetary policy.
RBA Governor Glenn Stevens mentioned in a brief statement today that he is concerned about the Australian dollar’s recent rise and highlighted risks that would come about to the domestic economy should the exchange rate continue to appreciate. Just last month, the aussie gained 7% against the US dollar. The Australian currency hit a nine-month high of $0.7722 at the end of March after a steady rise from a multi-year low of $0.6826 in January.
Factors such as ongoing concerns about global growth, especially a slowdown in China, (which is Australia’s major export market), as well as upcoming rate hikes from the Fed, would likely contain the recent rise in the Australian dollar though. Today’s RBA statement did not really give a sense of urgency to cut rates soon based on the current AUD levels.
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