Australian Dollar Outlook 20/10/2010
Australia: The Australian Dollar has opened two US cents lower after China's decision to raise interest rates for the first time in three years.
This morning, the AUD is trading at 0.9680 after reaching an overnight low of USD0.9663, which was just shy of two US Cents below yesterday's high of 0.9930.
It was a volatile night on Wall Street as stocks also slumped. Mixed company earnings and China's announcement to raise interest rates saw DJIA falling 160 points. Safe haven saw the US Dollar in demand, and the AUD sold heavily.
The People's Bank of China (PBOC) decision to raise interest rates for the first time in nearly three years, as Beijing attempts to limit
inflation and soaring property prices, was a genuine surprise. China's growth has been a key ingredient in the global economic recovery.
The interest rate boost slammed demand for currencies of countries like Australia, whose exports have surged to feed China's increasing demand for raw materials.
The one-year lending rate was lifted to 5.56% from 5.31% while the one-year deposit rate was lifted to 2.50%.
There was no explanation from the PBOC and it comes two days before China releases its Q3 GDP Report.
It would appear efforts to cool the economy with higher bank reserve requirements and lending quotas has not been as effective as desired and a pick up in growth, particularly in housing prices, has led to this decision. What an impact it had, with equities sold, commodity prices off, the USD higher and the AUD copping a hiding.
Today we have the Westpac leading index for August and Skills Vacancies Index for October, and there are several key announcements offshore as well.
From here, well, it's anyone's guess. This is pretty big news out of China. Maybe the Parity party is a brief one, whereas an 80's Party could be the bigger event.
Majors: China saw the Dollar become in demand and equities were sold. Gold was hit hard too.
After steadily rallying by nearly 20% since mid-July to a record near $US1400 last week, analysts said the commodity was "primed for correlation". It happened.
Oil and base metals also took a hit on the decision. Fed Reserve members spoke, contrasting views on QEII are occurring with some
supporting and stating it needs to be of a big enough size to make an impact whilst others are not so sure.
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