Tuesday, May 31, 2011

Aussie Dollar’s Era of Parity Beginning to Fade?

Fans of Aussie-U.S. dollar parity were dealt another blow today, as lower-than-expected Australian economic reduced chances of an interest-rate increase.

Third-quarter gross domestic product growth of 0.2% “confirms that the Australian economy lost momentum in the second half of this year,” said ANZ economist Katie Dean. Data show the economy responding to higher interest rates, with consumer spending starting to slow, she added, meaning the Reserve Bank of Australia “will be content with the current level of interest rates and won’t need to adjust policy settings for some time.”

She expects eased GDP growth to continue into the fourth quarter, possibly into early next year, before strong mining investment drives rebound in growth over the second half of 2011.
The lower-than-expected report comes as Australia’s central bankers grapple with fears of inflation, especially in housing.

All this is a negative for the Aussie dollar, as higher interest rates tend to push a nation’s currency higher. The currency was at US$0.9551 in early Asian trading Wednesday, from US$0.9588 late Tuesday.

For a brief, glorious period last month, the Aussie dollar matched and then exceeded the value of the U.S. dollar – bad news for a number of exporters and tourism, but good news for those who like to brag about all things Australia. But the currency—considered a speculative bet in investment circles–has been hit in recent days by a flight to safety by those worried about a spreading European contagion.

–Rebecca Howard

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