Forex Blog: Currency Trading News & Analysis.

May 19th 2008

AUD Draws Closer to Parity

The Australian Dollar is rapidly approaching parity with the USD, having risen 12.8% in the year-to-date. In fact, it recently notched a 24-year high against the Dollar. The currency’s strength is connected closely with the US-Australia interest rate differential, which currently measures a whopping 5%. While the Australian Dollar has always been a favorite target of carry traders, it has received a special boost from the easing of US monetary policy, which has turned the Dollar into a funding currency. The New Zealand Kiwi has also performed well, thanks to a benchmark interest rate of 8.25%. However, New Zealand rates are probably headed downwards, whereas the consensus for Australia is for rates to remain at current levels, or even to rise, depending on inflation. Bloomberg News reports:

Board members decided to leave the rate at 7.25 percent because of "the substantial tightening" in financial conditions since mid-2007 and "uncertainty surrounding" the outlook for economic growth and inflation.

Read More: Australian Dollar Rises to 24-Year High on RBA Meeting Minutes

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Posted by Adam Kritzer | in Major Currencies, US Dollar | No Comments »

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