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Daily FX Market Commentary

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Reserve Bank of Australia raised its leading interest rate by 25bp as expected

Tue, Nov 3 2009, 09:56 GMT
by Flemming J. Nielsen

Danske Bank A/S  |  View company's profile


Key news

  • Reserve Bank of Australia raised its leading interest rate by 25bp as expected, but the statement was slightly softer than expected. AUD has weakened, but so far little impact on other high-yield currencies.
  • Upbeat economic data improve confidence in recovery. Stock markets slightly higher and USD slightly weaker.

Markets Overnight

The US stock market yesterday finished a very volatile day up supported by upbeat economic data and better-than-expected third-quarter earnings and boosted guidance for 2011 from automaker Ford. However, the US stock market closed only marginally higher compared to market close in Europe yesterday and this morning Asian stock markets are mixed, with only the Shanghai showing solid gains; Japan is closed today.

US bond yields took their lead mainly from the stock market yesterday and are largely unchanged since market close in the US yesterday. The US Treasury cut its estimate for government net borrowing in Q4 significantly (USD276bn compared with a previous estimate of USD486bn), but this had very little market impact.

The Reserve Bank of Australia (RBA) as expected raised it leading interest rate by 25bp to 3.5% and repeated its October comment that it is “prudent to lessen gradually the degree of monetary policy stimulus”. However, RBA also said that the interest rate increase in October and November would work to temper inflation and ensure a sustainable recovery, which could suggest RBA will now slow the pace of monetary tightening.

In the FX markets AUD has weakened on the slightly softer tone from RBA, but so far there has not been any major impact on other high-yield currencies like NZD and NOK. With the overall improved risk sentiment USD has weakened slightly overnight. In Scandinavia both NOK and SEK have weakened against EUR since market close in Europe yesterday.


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