The aussie rally surges to a halt as the RBA caution against further rate increases in the short term

The aussie climbed over a cent, or 0.8%, against the pound in trading yesterday as the market priced in an interest rate increase in Australia.

  • The aussie led a strong rally as investors positioned themselves for the rate decision from the Reserve Bank of Australia, with most anticipating a increase of 25 basis points.
  • Although there were few still expecting the RBA to raise rates by 50 basis points following benign inflation data last week, investors were encouraged after, the Australian government on Monday upgraded its economic outlook, forecasting 1.5% annualised growth by the end of June 2010.
  • Overnight the RBA did raise their rates by 0.25%, with the current interest rate now reading 3.50%, however the aussie has actually backed off following the news as the accompanying statement was not as hawkish as some had expected.
  • With a rise already priced in, the aussie had little more to gain following the decision, but although it has dipped slightly, down 0.2% against the pound this morning, analysts note that with more rate increases to come the currency should remain well supported.