Latest economic data from both New Zealand and Australia showed improvement suggesting that the two Anglo Saxon economies in Asia Pacific may be the first to recover from the global economic contraction as they benefit from continuing Chinese demand.

The Reserve Bank of Australia made a Solomonic decision tonight lowering rates by 25bp to 3.00%. The RBA split the difference between Aussie bulls who anticipated no change whatsoever in the overnight rate and Aussie bears who forecast a larger 50bp cut. In commenting on their decision the board noted that , “There has already been a major change in both monetary and fiscal policy in Australia. Market and mortgage rates are at very low levels by historical standards and business loan rates are below recent averages, reducing debt-servicing burdens considerably. Nonetheless, the Board judged that there was scope for a further modest adjustment to the cash rate."

Over the past week, the Australian dollar staged an impressive rally as upside surprises in economic data fueled expectations that interest rates will be left unchanged for the second time in a row. Since March 10th, the Australian dollar has appreciated from a low of 0.6340 to an intraday high of 0.7228 on Friday. The Reserve Bank of Australia has a monetary policy meeting on Monday evening NY time, Tuesday morning in Sydney and the outcome of the meeting will determine whether the Australian dollar is able to sustain its gains. Currently, the market expects the RBA to leave interest rates unchanged, but some people believe that the RBA could cut rates by as much as 50bp, which means the upcoming rate decision, could be a close one. Although, leaving interest rates unchanged has become a common practice of many central banks these days, what sets Australia apart is that interest rates are not at zero, leaving the RBA with room to ease. At 3.25 percent, the country currently has the highest interest rate amongst developed countries.

The Reserve Bank of Australia kept rates on hold at 3.25% surprising the currency market which expected a rate cut of 25bp or more. The move came on the night when the country reported much better Retail Sales of 0.2% versus -0.5% expected as well as in improved Current Account number of -6.5 Billion versus forecast of -7.3 Billion deficit.

The Australian Dollar has been trading in a very tight range over the past few weeks and is prime for a breakout.