By Ashley Smith – Australia’s central bank increased the benchmark interest rate for the 6th time to 4.5% from 4.25%. The accompanying statement sent slightly mixed signals, flagging inflation concerns but also hinting to a pause in the monetary policy tightening stating that borrowing costs have returned to “average” pre global recession levels, ending the monetary stimulus.
The AUD dropped sharply as a result of the statement as it dampened investors’ expectations the current pace of monetary tightening will continue and that the central bank may keep rates on hold for the next few months. The AUD fell to a low of 91.86 U.S cents following the release.
This is may be a good opportunity to turn to the New Zealand Dollar which is normally shadowed by the AUD. While the Australian central bank hinted at a pause in interest rate hikes, the New Zealand central bank stated last week it expects to begin raising rates “in coming months. Furthermore, economic fundamentals are coming better than expected recently, supporting the assumptions the central bank will start tightening monetary policy soon. Whereas the AUD’s rally may be stalled in the near future, the NZD may yet be undervalued and provide interesting investment opportunities.
Forex Market Analysis provided by Forex Yard.
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