Tuesday May 4, 2010 - 18:59:33 GMT
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Aussie Weak; RBA Hikes Rate then Hints at Slowdown
The AUD USD is trading sharply lower at the mid-session.
Overnight the Reserve Bank of Australia
hiked its benchmark interest rate as expected by 25 basis points to 4.50%.
Based on comments from RBA Governor Glenn Stevens, this is likely to be the
last rate hike for a while. Stevens feels that the RBA has reached its
objective by bringing rates back to normal between 4.50% and 5.00%. He further
added that he feels inflation was likely to remain in the upper half of the
RBAâ€™s target range.
Adding further to the weakness in the Australian Dollar was
the sell-off in the equity markets. Traders also remain a little cautious as to
whether a tighter monetary policy in China will curtail demand for
Aussie goods and services.
The NZD USD is falling in sympathy with the Australian
Dollar and a lack of demand for higher yielding assets. Based on the activity
by the RBA, many traders now feel the Reserve Bank of New Zealand
will wait until the second half of the year before raising rates. The chart
formation suggests a test of the former top and current breakout area at .7199
is likely. If this price fails to hold, then look for a full retracement to
.7188 to .7156.
The drop in gold, crude and equities is helping to trigger a
break out rally in the USD CAD. After building a support base in April, this
pair finally crossed a swing top at 1.0215 to turn the main trend to up on the
daily chart. Upside momentum indicates that 1.0302 is the next upside objective
followed by 1.0366. The weakening Canadian Dollar is most likely pleasing to
the Bank of Canada which hinted last week that a strong currency is likely to
have an impact on inflation and monetary policy. This led this analyst to
believe that the BoC was intervening to weaken the Loonie.
The Euro is trading sharply lower at the mid-session after
reaching a new 12-month low. Although a bailout agreement was reached by the
Greek government, the European Central Bank and the International Monetary
Fund, bearish traders have shifted their focus to the growing fiscal problems
in Spain and Portugal.
Problems in the Euro Zone are spreading to the U.K. Traders
are also concerned about the May 6th election. The main worry is that the
current polls suggest the strong possibility of a hung parliament. If this
occurs, then it may mean that the new parliament may not be able to come up
with concrete plans to fight the budget deficit and sovereign debt concerns.
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