RBA Holds Rates Steady Despite Inflationary Pressures

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The Reserve Bank of Australia ( RBA ) announced this morning that it would hold its benchmark rate steady at 4.75% despite the recent surge in inflationary data releases. The result was a sudden downturn in Australian dollar (AUD) values across several of its currency pairings.

RBA Governor Glenn Stevens remarked that the record rise in Aussie values should help prevent a breakout in prices, though inflation is expected to gain some momentum in the months ahead. The AUD/USD recently touched 1.1011, its highest mark since the first days of becoming a floating currency in 1983.

The resistance and support garnered around the Aussie recently is generating enough pricing pressure, according to Stevens, to act as a natural monetary check. Prices are prevented from sky-rocketing out of control since interconnected costs and values would make such a rise unpalatable to consumers.

With this stance by the RBA, it appears that speculation of a rate hike has been disappointed and investors are beginning to shift temporarily away from the Aussie in the short- to mid-term. The connection of the Australia dollar to commodity prices has also helped add weight on top of the Aussie's value considering the recent dip in oil and silver prices.

Updating your outlook on the AUD may become necessary in the near-term considering the RBA's stance on monetary policy has shifted to one of hesitation. The recent string of inflationary figures had many analysts expecting a rate hike in the near future and began pricing in such information. The position that rates would be held steady while the AUD reaches record highs means monetary tightening will likely be delayed, possibly until 2012. This should begin to have effects on the value of the AUD, pushing against its latest bull-run.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Forex and Currencies

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