Tuesday 2 March 2010

Aussie Dollar gets rocket fuel recharge, but watch for blow-back

The Aussies are back to raising their benchmark interest rate today, from 3.75% to 4.00%. This will almost certainly give fresh impetus to the sustained rise of this currency on foreign exchange markets. Just about nobody else has an economic situation they feel could sustain any kind of fiscal tightening for now. I would say the Aussie Dollar would continue to be a buy for now, certainly compared to the likes of the Pound.

But watch the data coming out of China, because when it becomes clear their own debt bubble has burst (and it will eventually, but who can say how long they can keep it pumped?) demand for raw industrial commodities, which underpin the Aussie economy, will vapourise rapidly. The economic mojo in the land down under will then disappear, like the water in its reservoirs. Let's be careful out there, mates.

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