According to the minutes released by the Reserve Bank of Australia last night, the central bank actually considered raising interest rates by 50bp earlier this month.
Since the middle of January, the Australian dollar has rallied over 600 pips because Australia is the only developed country that is raising interest in an environment where everyone is else is lowering them. Today’s announcement is icing on the cake for Australian dollar bulls. With a booming economy and rising inflation pressures, the RBA only opted to raise rates by 25bp because the financial markets are still unstable and they can always tighten further in March. Central bank Assistant Governor Edey expects inflation to continue to rise, which means that another 11 year high in interest rates is practically a given next month. The Canadian dollar on the other hand fell sharply today disappointing CPI and wholesale sales numbers. Despite the fact that oil futures touched $100 a barrel intraday, the Canadian economy is getting progressively worse while the strength of the Australian economy continues to catch everyone by surprise. For that reason, on a percentage basis, AUD/CAD was the day’s best performing currency pair.