Market Overview

Australian Dollar Falls on Interest Rates Hold

The Australian dollar fell against the U.S. dollar on Tuesday, as the Reserve Bank of Australia decided to leave its interest rates on hold for the sixth consecutive meeting. The move was widely anticipated, however. At the moment, RBA has its interest rates set at 4.75%. The Australian dollar fell 0.168% against the greenback to $1.0696.

The Australian interest rates are still comparatively very high, making the Australian dollar an attractive investment. At the moment, the interest rates for the Eurozone is 1.25%, while for the UK it is 0.5%. The United States has even lower interest rates of just 0.25%.

Some traders might be concerned by the RBA report, however, as the Australian central bank commented on a slowdown in economic activity, especially outside the resources sector. The report might easily be interpreted as a sign that the interest rates will not start to rise so quickly.

The underlying foundations of the Australian economy remain strong, however. The demand for Australia's vast natural resources, especially from China, remains one of the drivers of the Australian growth. Even though the Australian GDP growth was hit hard in the March quarter by the Queensland floods, its economy is expected to rebound in June quarter.

Traders who believe the Australian economy will remain stronger than that of other developed nations in Europe and North America, which should provide steam for the Australian dollar, will be interested in the CurrencyShares Australian Dollar Trust ETF (NYSE: FXA).

Some traders might believe that interest rates might start to rise earlier in other developed nations, which should send the Australian dollar into retreat. These traders will be more interested in the ETFS Short Australian Dollar Long US Dollar ETC ETF (SAD).

Posted-In: News Forex Economics Markets ETFs

 

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