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Aussie Subdued After RBA Rate Hike But Still Best of the Pack

Last updated 3/2/2010 2:57 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

The Reserve Bank of Australia resumed it rate tightening policy elevating its benchmark rate to 4.00% - the highest in the G-20 universe, but the cautious tone of the post announcement statement by Governor Glenn Stevens tempered market enthusiasm for the currency and Aussie remained  below the .9000 level at the start of European morning trade.

The RBA stated that, “In Australia, economic conditions in 2009 were stronger than expected,” noting that,” Labor market data and a range of business surveys suggest growth in the economy may have already been at or close to trend for a few months.” Prior to the RBA announcement Australian Retail Sales printed at 1.2% versus 0.8% projected confirming this bullish assessment.

However, Governor Stevens also stated that, ”Credit conditions remain difficult in some major countries as banks continue to face loan losses associated with the period of economic weakness. Concerns regarding some sovereigns remain elevated.” As we wrote yesterday, “the RBA has been extraordinarily cautious in its monetary policy stance guided more by the lackluster global macro economic conditions rather than the relatively impressive performance of the Australian economy.” China remains the absolute key to RBA’s future monetary policy decision making and any material slowdown in Chinese output would likely cause the RBA to err on the side of caution.

For the time being however, Australia remains the best performing economy in G-20 and the Aussie still represent the best bet on risk in the currency market. Despite its lack of response to the latest RBA rate hike, the AUD/USD has held up well in comparison to euro or sterling  and should continue to outperform the other high beta FX pairs for the foreseeable future.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.