Could the Reserve Bank of Australia Really Raise Interest Rates?
The Reserve Bank of Australia will be announcing their monetary policy decision this evening and their announcement could set the tone for the entire market this week.
If the RBA really raises interest rates not only will the Australian dollar rally, but we could see a nice run in carry trades as well. With everyone talking about global growth slowing, a rate hike from the RBA would mean that at least this central bank feels that their economy can handle tighter monetary policy. Based upon the 6 day rally in the Australian dollar, traders seem to agree. Of the 27 Economists surveyed by Bloomberg, every single one is calling for a quarter point rate hike. The sheer reality of 7 percent interest rates would send capital flooding into Australian dollars. Traders however need to be careful because everyone has jumped on the quarter point rate hike bandwagon, which means that if they do not raise interest rates, the currency will plunge quickly and sharply. Australian retail sales are expected to be released a few hours before the RBA rate decision, but it will most likely be overshadowed by the monetary policy announcement. The December trade balance was released this morning and rising exports helped to narrow the deficit from 2.2B to 1.9B. Meanwhile the Canadian dollar also strengthened while the New Zealand dollar lost ground. No economic data was released from either country.
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