John from Moneycorp

Australian dollar update - 02/10/2012

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    The Australian dollar accompanied the Canadian dollar, the Swiss franc, the euro and the pound at the bottom of the week's uninspiring league table. There was nothing to choose between them.

     

    It was not that the Aussie did anything particularly wrong. There were almost no Australian economic data to handicap it. The one that that did appear showed a 4.1% increase in private sector lending, not enormous but suitably positive.

     

    The Aussie's problem was - and is - a belief that interest rates are heading lower because economic growth is slowing. From the Reserve Bank of Australia's policy meeting this month investors expect to receive a signal that lower rates are on the way. Even though the current 3.5% benchmark rate is the highest among major currencies, the likelihood of it falling is a turn-off for investors.

     

    Overnight, the Reserve Bank of Australia (RBA) has cut its official interest rate to 3.25%, the lowest level in three years. Following this annoucement, the Australian dollar has weakened against the pound.

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    The Australian dollar is still under pressure following their trade balance figures being released – Australia returned a A$2.03 billion deficit in August, its worst performance since March 2008 and this was much worse than forecast.

     

    Following the recent interest rate cut, it has not been a good week for the Aussie.

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