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Australian Dollar Rallied as RBA Kept Rate Unchanged, Global Demand Slows

Australian Dollar Rallied as RBA Kept Rate Unchanged, Global Demand Slows

2012-09-04 05:25:00
Gary Kerdus,
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THE TAKEWAY: RBA kept benchmark lending rate unchanged at 3.50% > RBA concerned over European and Chinese slowing > Australian Dollar rallies after selling off heavily since Aug 9

The Australian Dollar traded higher versus the U.S. Dollar as the Reserve Bank of Australia left their benchmark lending rate unchanged at 3.50% in August. Governor Stevens cited in his statement that “economic activity in Europe is contracting” and that “growth in China remained reasonably robust” through the year, however the “robust” growth appears to have weakened when compared to growth from prior years.

Moreover, Stevens further states that “some commodity prices of importance to Australia have fallen sharply.” Falling commodity prices may perhaps be the single most important concern to the Aussie economy as it signals a key tell on the flagging European growth story. Australia exports iron ore to China and China then uses the ore to produce steel which is subsequently sold to Europe. The slowdown in Europe has resulted in decreased demand for Chinese steel which invariably leads to a commensurate drop-off in demand for Aussie resources. The process ultimately results in less wealth flowing into the Aussie economy. Stevens provides further support by stating “growth is being dampened by the more moderate Chinese expansion and the weakness in Europe.”

The Australian Dollar likely rallied in relief to the larger selling pressure that has broadly taken place since August 9 where the pair lost 3.67 percent versus the greenback over that period.

AUD/USD, Daily Chart

Australian_Dollar_Rallied_as_RBA_Kept_Rate_Unchanged_Global_Demand_Slows_body_Picture_1.png, Australian Dollar Rallied as RBA Kept Rate Unchanged, Global Demand Slows

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